H&R Block's Emerald Card is a flawed gem

Tax-preparation stores are attempting to solve a problem for their low-income customers without bank accounts. H&R Block is offering its customers a cash card to hold their tax refunds. For no start-up or maintenance fees, clients can load their refunds directly onto a MasterCard debit card called the Emerald Card. Like a savings account, the Emerald Card's balance is protected by the FDIC. Like a credit card, holders are protected from unauthorized purchases. They can add balances throughout the year, spend anywhere MasterCard is accepted, and take out money from participating ATMs for a $1.50-per-transaction fee.

Jackson Hewitt's iPower CashCard is similar, though more costly. You have to pay a $30 start-up fee, plus a Jackson Hewitt "office fee" that averaged $2.24 last year, according to the iPower web site. This card has the same balance protection as the Emerald Card, but requires no fee for using a participating ATM.

I should get excited about these cards. After all, they may be the only protected way "unbanked" people can hold on to their money. But there are drawbacks I don't like. The iPower card expires on July 31, 2007, so you're encouraged to spend that money rather than save it. The Emerald Card also expires, though an FAQ on the Block site suggests you can load your funds onto another card before the expiration date. But what a pain!

Of course, there's no interest offered, though at the low rates most brick-and-mortar savings and interest checking accounts are providing, that's no great loss. Still, by offering no interest, these cards offer little incentive to save, and to periodically shop for higher rates.

What I'd like better would be some truly low-cost, interest-bearing savings and checking accounts for lower-income savers. They're available online (check out Bankrate.com's listing of the top interest-paying accounts), but not of much use to people who don't have easy access to a computer.

One group looking for a solution is America Saves, a coalition of nonprofit, corporate and government entities focused on increasing the savings rate in the United States. Among its programs, America Saves identifies financial institutions that will provide low-minimum-balance, interest-bearing accounts to new savers. Individuals and families can join groups based in churches and community centers that offer "wealth coaching" to encourage good savings practices. America Saves says it has 65,000 such members nationwide.

This approach serves lower-income folks better than a temporary cash card, even one that can be renewed. In my view, if you want to save, don't put your money into Emeralds.