Prepaid cards costlier than basic checking accounts
April 4, 2011
SAN FRANCISCO, CA – Most prepaid cards charge higher fees than basic checking accounts offered by the top five banks in the U.S., according to a new analysis released today by Consumers Union, the nonprofit publisher of Consumer Reports.
While some banks are beginning to charge new fees, Consumers Union found that consumers will save money and enjoy stronger protections with a basic checking account compared to a prepaid card, especially if they take some simple steps to minimize fees. Some prepaid card issuers do such a poor job disclosing fees that consumers may be surprised at how quickly fees can add up. Consumers Union offered tips to help bank and prepaid card customers reduce fees.
“There’s no question that some banks are adjusting their fees and that consumers may face new charges that increase the cost of maintaining a checking account,” said Suzanne Martindale, staff attorney for Consumers Union’s Defend Your Dollars campaign (www.defendyourdollars.org). “But checking accounts remain a better deal than prepaid cards because they’re still cheaper and they offer stronger protection to consumers.”
Consumers Union examined the fees charged as of March 31, 2011 for low balance, no-interest checking accounts at Bank of America, Chase, Citibank, US Bank, Wells Fargo, Alliant Credit Union and Golden 1 Credit Union. Consumers Union also examined the fees charged as of March 31, 2011 for the following prepaid cards: Account Now Gold Prepaid Card, Green Dot Prepaid Card, H&R Block Emerald Card, Insight Monthly Fee Card, Insight Pay As You Go Card, Joyner Reach Card, NetSpend VISA Fee Advantage, NetSpend VISA Pay As You Go, Reach Card, Rush Card Pay As You Go, Rush Card Pay Monthly, Wal-Mart Money Card, and Western Union.
The group tallied the cost over the course of one year for a consumer who opens an account and each month pays three bills (two online, one by check) and makes eight point of sale purchases, three ATM withdrawals, two balance inquiries, and two deposits. Based on Consumers Union’s analysis of this hypothetical consumer, the group found:
• Assuming consumers took steps to minimize their fees as much as possible, all of the checking accounts offer a cheaper deal than 10 of the 12 prepaid card programs. Wells Fargo and Bank of America are cheaper than all 12 prepaid cards if the customer avoids monthly fees and non-network ATM fees. Western Union and H&R Block are cheaper than the checking accounts offered by Citibank, US Bank and Chase.
In order to minimize checking account fees, bank customers would have to avoid the use of non-network ATMs and take the steps necessary to waive the monthly fee. In the case of prepaid cards, customers would have to avoid using non-network ATMs for balance inquiries and cash withdrawals, and reload their cards using direct deposit only in order to minimize fees.
• Assuming consumers took no steps to avoid fees, all of the banks and credit unions we examined were cheaper than nine of the twelve prepaid cards. The prepaid cards offered by WalMart, H&R Block, and Western Union were cheaper than the checking accounts we examined at Citi and Chase for those customers who took no steps to avoid fees.
• Even if checking account customers pay a monthly fee, they are better off in most cases than many of the prepaid card customers who take all of the steps they can to avoid fees. Under this scenario, all but one of the checking accounts we analyzed (Chase) cost less than six of the 12 prepaid cards.
• The costs at the two credit unions we examined are less than all of the banks and prepaid cards we reviewed if consumers take steps to minimize fees to the fullest extent possible. At Alliant Credit Union, consumers don’t face any fees so long as they avoid out-of-network ATM fees. At Golden 1 Credit Union, consumers paid $16.95 over the course of a year when they take steps to avoid out-of-network ATM fees, which is slightly cheaper than the Western Union or H&R Block cards (at minimum $18).
See Consumers Union’s analysis for specific costs associated with each of the checking accounts and prepaid cards examined.
US Bank is the only bank of the five examined by Consumers Union that does not currently charge a monthly fee for its basic checking account (although the bank has announced that it may soon charge a monthly fee). Monthly fees can be waived at the four other banks if consumers meet certain conditions, such as using direct deposit at Wells Fargo or by using debit cards to make five purchases each month at Chase. Customers can avoid ATM fees at all five banks by using only their own banks’ network of ATMs. High-cost overdraft protection fees can be avoided by not signing up for such programs or by choosing a cheaper alternative such as linking a checking account to a savings account.
Consumers Union’s analysis of prepaid cards found that it can be very difficult to identify all of the fees that consumers can be charged. In a number of cases, the complete fee schedule was difficult to find on company web sites and the information was sometimes confusing. Prepaid card users can take steps to reduce their fees. For example, $4.95 MoneyPak fees for re-loading money onto prepaid cards can be avoided altogether by using direct deposit or lowered slightly to $3.95 using MoneyGram. Prepaid card users can avoid non-network ATM fees by getting cash back when making purchases and by checking balances online or over the phone.
Aside from the fees associated with prepaid cards, consumers need to be aware that they
may be vulnerable to losing their money if their prepaid card is lost or stolen and used by others to make fraudulent transactions. That’s because prepaid card users whose money is held in a pooled account are not protected by the same regulatory and statutory safeguards that enable bank account debit card users to recover their money. Prepaid cards may only have voluntary protections that could be revised or rescinded at any time for any reason.
“While some prepaid card fees can be avoided, it’s not always easy for consumers to take the steps they need to get around these costly charges,” said Martindale. “But even savvy prepaid card customers are still operating at a disadvantage because they don’t get the same consumer protections that bank customers enjoy.”
Michael McCauley – 415-902-9537 (cell) or 415-431-6747, ext 126 (office), firstname.lastname@example.org