Starting from scratch: alternative banking products

This week I've been writing about some strategies, credit cards, and loyalty programs I would use differently if I were building a travel hacking practice from scratch. If I were ignoring my elite status and current stable of credit cards, I'd focus even more on fixed-value points for use in booking airline tickets, and I'd ignore hotel loyalty completely in order to maximize my cash discount booking hotel nights through online travel agencies.

Today's post is about the alternative banking products I've used, abused, and lost throughout the last five or six years.

High-interest prepaid savings accounts

Back when CVS allowed virtually-unlimited numbers of Vanilla Reload Network reload cards to be purchased with credit cards, the American Express "old" Blue Cash offered unlimited 5% cash back, and the Hilton HHonors Surpass American Express gave 6 HHonors points per dollar spent at drug stores, there was a constant search for new prepaid products that could be loaded and unloaded as quickly as possible through the Vanilla Reload Network. I burned through 3 MyVanilla accounts, 2 Netspend accounts, and a Momentum account all in order to liquidate as many Vanilla Reload Network cards as possible.

In hindsight, with Vanilla Reload Network cards today mostly unavailable to credit card users, that was a mistake: Netspend and Momentum offer savings accounts with higher FDIC-insured interest rates than those available anywhere else in the market today, and I'd prefer to still have working relationships with those companies.

American Express prepaid banking products

Like most aggressive users of American Express's Bluebird and Serve prepaid products, on January 8, 2016, my accounts were all closed. I had been using both accounts to liquidate PIN-enabled prepaid debit cards for free, and in the case of Serve, earn cash back by loading funds from my Fidelity Investment Rewards American Express card.

If I were starting over today, I wouldn't use American Express prepaid banking products to manufacture spend at all: I'd use them to manufacture transactions for high-interest savings, checking, and credit card accounts that require a certain number of transactions per month to unlock their highest reward levels.

Conclusion

I don't have any regrets about the path that my travel hacking practice has taken, even though I focus more on airline and hotel loyalty currencies than I would if I were starting from scratch today.

I probably slightly overpay for my checked bags by earning Delta Medallion elite status with a Delta Platinum American Express each year, and I earn only part of that value back with high-value SkyMiles redemptions.

Likewise, I tend to overpay for my hotel stays by earning Hilton HHonors points and Diamond elite status with my Hilton Surpass American Express, instead of booking through a cashback portal and online travel agency, and I've certainly overpaid by directing stays towards Hyatt during this year of my Diamond status match.

But building relationships with banks and merchants is a process that necessarily develops over time, and as things stand I'm more or less happy with the decisions I've made and the relationships I've built, even if I would have proceeded different in hindsight.

I'd sure kill for another shot at a Serve account, though.

Update: PayPal Prepaid Debit (Netspend) shutdowns

Back in December I wrote up two similar products that have a (well-deserved) bad reputation in the travel hacking community: the netSpend Visa and PayPal Prepaid MasterCard. The cards function almost identically, with a few minor differences:

• The underwriting bank is different, and consequently the PayPal Prepaid MasterCard can't be added as a funding account to some banks;
• The PayPal MasterCard costs $4.95 per month, and has the other features of a "premium" netSpend account.

Those differences are trivial since your account will be shut down within a month. The reason these cards are interesting is that they're Vanilla-reloadable, using Vanilla Reload Network reload cards, and they allow ACH "pulls:" transactions initiated on another bank's website.

Shutdown Update

As I wrote in my original post,

while reader Tim reported that his netSpend and PayPal Prepaid MasterCard accounts were shut down simultaneously, that wasn't my experience: I haven't loaded or unloaded anything to my PayPal Prepaid MasterCard account, and it's still open, while my netSpend account was shut down a few days after finishing my first month's $5,000 in loads.

Once my netSpend loads rolled off my 30-day history, I loaded another $5,000 to the PayPal Prepaid MasterCard and used ACH pulls to withdraw the money. But my account remained open, giving me the faintest of hopes that I'd be able to use the card for an additional $5,000 per month in manufactured spend in perpetuity.

Then they closed my account.

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When it comes to these abusive corporations, a lot of people will tell you to just stay away. My advice is a little more nuanced:

• Know what to expect. You will be shutdown within a month;
• Protect yourself. Withdraw money immediately;
• Most importantly, don't use money you can't afford to be without for up to a month.

When you follow those three rules, there's no reason to think of netSpend as the "enemy" or worry about them "catching" you: they offer a product that allows you to manufacture $5,000 in spend, one time. Whether that product interests you isn't a moral judgment, it's a practical judgment.

Choose wisely!

netSpend: easy come, easy go, easy $5,000 in manufactured spend

Today's post comes thanks to reader Tim, who convinced me to finally look into netSpend and shared with me his findings based on numerous conversations with their Customer Service department. While netSpend is no secret, I thought it would benefit all my readers to know what to expect if they decide to take advantage of it.

I had never bothered previously since, frankly, I didn't need to: I had MyVanilla Debit cards which could more than handle the volume of manufactured spend I was generating, and I knew netSpend had a bad reputation for account closures.

With my recent MVD shutdowns in hand, and the upcoming expiration of my 5% Citi ThankYou Preferred card offer, I decided to put netSpend through its paces.

Signing up for netSpend

The best way to sign up for netSpend is through a referral link, which gives both you and your referrer $20 after making your first deposit into the account (of $40 or more). There's a "conga" line set up for this purpose on Flyertalk.

Adding Money to the Account

Once you receive your permanent card in the mail, you can add money to the account using Vanilla Reload Network reload cards, subject to the following limits:

• $2,000 per rolling 24-hour period;
• $3,500 per rolling 168-hour (7-day) period;
• $5,000 per rolling 30-day period.

The point is, the time of day you load the Vanilla Reload Network reload cards to your account matters. If you load $2,000 at 5 PM on Monday, you can load another $1,500 at 5:01 PM on Tuesday, and another $2,000 at 5:01 PM the following Monday.

Withdrawing Money from the Account

Here's the best part of this card, and what hasn't been widely reported elsewhere: netSpend is set up to allow free ACH pulls out of the account, using the same routing and account information on the direct deposit form you can access from your online account. That means that there are no additional costs to manufacturing $5,000 in spend per month using this account, after you've bought your reload cards. That makes it in some ways superior to Bluebird, the mainspring of manufactured spend for those with access to CVS or Walmart store locations.

Getting Shut Down

Unfortunately, netSpend aggressively shuts down the accounts of customers who aren't generating the extortionate fees they charge for transactions made with the card. That means that there is only one safe way to use netSpend: immediately empty your account after loading it, and never leave money in the account. This does guarantee that you'll be shut down, but it also minimizes the amount of money netSpend will have to mail you by check (generally up to 20 days later).

Doing it Again

Interestingly, there's another almost identical product offered by netSpend, the PayPal Prepaid MasterCard. The PayPal Prepaid MasterCard is essentially the same as the "premium" netSpend account: it has a $5 monthly fee, no fees for purchases, and comes with a linked 5% APY savings account (5% APY paid on balances up to $5,000). It also has the same $2,000/$3,500/$5,000 load limits.

But there's a wrinkle: if you have both a netSpend account and PayPal Prepaid MasterCard, your load limits are shared between the two cards. That means there's no reason to have an active netSpend and PayPal Prepaid MasterCard at the same time: you can start with one, get shut down, then open the other.

Finally, while reader Tim reported that his netSpend and PayPal Prepaid MasterCard accounts were shut down simultaneously, that wasn't my experience: I haven't loaded or unloaded anything to my PayPal Prepaid MasterCard account, and it's still open, while my netSpend account was shut down a few days after finishing my first month's $5,000 in loads. That means I'll be able to put another $5,000 through the PayPal Prepaid account once my netSpend load transactions roll off my 30-day load history.

I'd love to hear from my readers: have you used netSpend? Have you already been shut down? If not, what's your strategy for avoiding unwanted attention to your account?