The 401k ReservePlus Debit Card

As the popularity of debit cards increases, so does the creativity of their usefulness.

Back in 2003 a company came up the idea of something called the ‘Reserve Plus’ debit card, which I personally feel is a really cool idea. Maybe you have heard about about, but I imagine many have not. Here is how it works:

After a company (aka your employer) adopts the program, employees can transfer their approved loan line into a ReservePlus account online. Later, they receive a debit card that they can use to take out as much or as little as they need of the loan amount — on average taking out 35% less than they applied for, says David Young, director of Reserve Solutions at The Reserve, the company offering the cards.

The loan begins only after the money is removed from the account. Instead of a payroll deductions, participants are billed directly, and then pay back the loan through the same mechanisms used to repay a credit card. Depending on the employer, some may also qualify for a revolving loan — taking out and paying back money as they need it.

Companies who wish to enroll in this program, but feel it may be a burden on their H.R. departments, have nothing to fear. The 401(k) debit-card program means that it no longer bears the administrative burden of creating amortizations schedules and collecting loan payments. And the program is free for them to adopt: employees pay for the programs administration through an initial sign up fee and interest on their loans, which is a lot less than the traditional ‘borrowing’ from your 401k account.

Even though this is still a very new concept, it appears to be building in popularity, and once all of the bugs are worked out, it could be a common feature available for all employees who wish to use it.