As you have probably heard, more and more banks and other companies are trying to capture the business of the "unbanked." This is a fast-paced industry so it's hard to keep track of the developments. As with all commercial products, buyer beware! Pre-paid debit cards are often viewed as convenient alternatives to cash and expensive checking accounts. While there may be many advantages to these cards, there are also many disadvantages a consumer should consider. Below you will find some of the major advantages and disadvantages associated with these cards. Keep in mind that different cards have different policies and the statements below simply highlight important information you should consider.
- No credit card bill to pay.
- Avoid banks by loading money onto the card through phone, web, or at ATMs.
- Anyone over the age of 18 can apply without regard to credit history.
- Unlike credit cards, the consumer does not carry a credit balance on a pre-paid card. This makes it easier to avoid debt.
- If your card gets lost or stolen, the cardholders losses are limited only to the amount of money loaded onto the card.
- Usually no overdraft fees. (Please Note: Some pre-paid debit cards offer an opt-in over-draft feature.)
- Some pre-paid debit cards allow for automatic bill pay.
- Pre-paid debit cards do not help you build credit.
- Many pre-paid debit cards charge fees before you even start using them. There is usually a monthly fee and fees on common transactions such as ATM withdrawals, card replacement, direct deposit, and reloading the card. There is even a fee associated with cancelling pre-paid cards.
- Fees are typically hidden in fine print on the card provider's website.
- Different cards have different policies regarding the charges you can make. For example, not all cards allow for direct deposit or automatic bill-pay.
- Many pre-paid debit card providers charge fees to view account balances or simply do not offer the services.
- Consumers Union points out that pre-paid debit cards do not carry the same protections that regular debit cards have in the event of fraud. Any protection offered on a pre-paid debit card is voluntary, subject to change, and not mandated under federal law.
- Shop around and find the pre-paid debit card that works with your budget. It may help to make a list of the types of purchases you intend to make with the card and find one that fullfills your needs. The site Nerd Wallet has a feature that makes comparing prepaid cards easy, or you can view this CFPB report comparing the most popular prepaid cards (the comparison starts on page 10).
- Be knowledgable about your purchase. Read the information on the card itself, the acompanying packaging, and the terms and conditions on the provider's website. This will help you avoid unforseen or hidden fees.
- Keep a careful eye on your account balance. This will help you avoid overdraft fees (if applicable) and help to prevent possible fraud.
- Know who to contact if you have any problems or issues with your pre-paid debit card. This information is usually on the packaging itself or the company's website.
Follow the links below to learn more about prepaid debit cards. We'll add to this list as new information comes out. The more you know, the less likely you'll lose out to a bad deal.
Branded Prepaid Card Report (November 2013)
In depth analysis of prepaid card costs vs. checking accounts and other alternatives. Includes links to related Consumers Union reports.
Prepaid Card Survey National Consumer Law Center (April 2012)
NCLC announces the results of its nationwide study of 28 cards from 11 issuers. Almost all of the cards surveyed are offerd in every state; all 28 are offered in Maine. This report includes lots of useful consumer information, including tips for shopping for a prepaid card and what to watch out for. Also included in this report:
Detailed list of charges and terms for each card surveyed
Link to nerdwallet an online tool for comparison shopping
Apples to Apples? Prepaid Cards Compared MyBankTracker 2/24/12
Compares the fees of the top pre-paid cards and gives you an idea of how they stack up against typical checking account fees. Note: In Maine, local banks may still off the best deal through a checking account.
Prepaid Cards:Second Tier Bank Account Substitutes (September 2010)
Looking at prepaid cards from the consumer perspective: comparative costs, smart shopping for a card, pitfalls, etc. See last page (Appendix C) for summary of "Consumer Advice and Tips."
Please note: These websites are provided for informational use only. PTLA does not sponsor or endorse any pre-paid debit card or suggest the use of any particular card.
Updated November 2013