I am very familiar with this kinda stuff, have done variations of this a thousand times over 50 yrs.
Well, ya, you could use a hole saw.
A step bit would be overall easier, to handle, and a much cleaner hole, but holesaw OK.
But holesaw takes some experience to use succesfully, For you, I strongly advise against.
&/8 is the hole size for "1/2" pipe, cut in steel by Electricians more than anyone.
They do NOT use hole saws.
One advantage of using the step bit is it is basically user error free.
The holesaw takes some various finesse.
Seeing as how you first tried w a spade bit, sorry, you have your skills in other areas.
You again, apparently have your skills in another arena, and do not do "shop work"
Everyone has different skills, this is NOT a cut down.
So, this seems to be a one time use for you.
So, I highly recommend the stepbit, better , easier, and cheaper then hole saw.
Spade bit?????
Uh, no, not for any metal thicker than like .020", and even then, not steel, just AL, copper, etc.
Soft stuff.
Joe Black said the step bit is not accurate - ?????????????
I respectfully TOTALLY disagree.
He may have had some bad experience.
The step bit cuts a MUCH cleaner hole than hole saws, and does not wander, vibrate, get goofy potentially in various ways like a hole saw does a bit, even with it's pilot) at ALL
Heres your cheapest bet - Chinese, but for your use sufficient.
Sourced from here -
https://www.amazon.com/s/ref=nb_sb_noss?url=search-alias=aps&field-keywords=step+bit+7/8"
The step bits do NOT require a "sterter hole" at all.
BUT - It will last longer if you do predrill like with a 1/8" bit, cause the very tip seems to be the first to dull, but only after numerous uses.
Wish you were at my shop, done in a few heartbeats.
If you want a hole saw, cheapest good way to go for one is- find specifically a "McCoy" with an integral arbor. Marc