Green Dot touts bank industry's highest-yielding savings account

• Online bank Green Dot bank is launching a bank account with a 3% annual interest rate on savings, the highest offered by any U.S. bank, according to Bankrate.com.    
  
• Yet one expert notes the savings account comes with a debit card that includes a $7.95 monthly fee and strict rules that for some users would wipe out any gains made with the savings rate.
• There's also a $10,000 savings cap on the account's annual 3% interest offer, something competitors offering 2.5% annual interest don't impose.

Green Dot is touting a new bank account that it says will help Americans do something most of us are lousy at: Saving more money.

The branchless online bank on Tuesday launched a bank account offering 3% annual interest on savings and 3% cash back on debit card purchases. The 3% savings-account rate is the highest offered in the U.S. by any bank, which offer a pitiful average rate of 0.1% for savings, according to Bankrate.com.

That said, "there are rewards checking accounts that can pay a similar or higher yield on a limited balance, as the GreenDot account does, but require meeting certain requirements each month such as 10 debit card transactions, getting statements online, and making an online payment," emailed Greg McBride, Bankrate's chief financial analyst.

The offer also tops the Fed Funds rate at which banks lend to one another and is likely to fall after a much-anticipated rate cut by the Federal Reserve on Wednesday. The Fed is widely expected to trim rates for the first time since 2008, with most looking for a 0.25 percentage point cut in the central bank's short-term rate.

In its announcement, the company cited statistics from the Fed showing one in four Americans don't have enough cash set aside to cover an unexpected expense of $400. 

"Everyone knows that it's smart and responsible to save up money for the future, but we also know that, for most people, saving up money is hard to do," stated Steve Streit, founder & CEO of Green Dot Corp. and Green Dot Bank. 

Since customers redeem their 3% cash back each year on their account anniversary, the debit card is akin to "a forced savings account that uses the bank's money to build up a potentially sizable balance" as it is used for everyday purchases, Green Dot said in its release.

The down side

Still, the offer is not all that it might seem at first glimpse, according to Ken Tumin, founder and editor at DepositAccounts, a subsidiary of LendingTree.

The 3% annual percentage yield, or APY, only applies to a balance up to $10,000, and there are several online savings accounts that pay about 2.5% APY without such caps on higher interest payouts, Tumin emailed."Green Dot's savings account will only allow you to earn about $50 per year more than another savings account that pays 2.5% APY," he wrote.

"The 3% APY is great, but it's only up to a $10,000 balance so the appeal is to those that are trying to accumulate savings more so than those that already have it," offered Bankrate's McBride.

The offer also requires that customers have the cash back bank account which comes with a $7.95 monthly fee, which can be waived if the debit card was used to make at least $1,000 in purchases the prior month. "If you don't avoid this fee, the APY advantage would soon be eliminated," Tumin stated. 

McBride noted another limitation: "The 3% cash back is only for online and in-app debit card transactions, not for swiping at the point-of-sale terminal." 

The Pasadena, California, bank initially offered prepaid debit cards in 1999 with an eye on online shoppers. Green Bank stepped into banking when it bought Utah's Bonneville Bank for $15.7 million in 2011. It's since partnered with Walmart on the retailer's prepaid debit card and with Uber on checking accounts for the ride-sharing app's drivers.