Prepaid Card Tips for Consumers

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By Consumers Union on Thursday, August 13th, 2009

We just released a report, Prepaid Cards: Second-Tier Bank Account Substitutes that details prepaid card “gotchas,” such as the mountain of fees consumers would be hit with along with lack of guaranteed consumer protections.

We compared the cost using a hypothetical consumer’s activity for 2 months for 18 prepaid cards and found that it may cost a consumer a whopping $115.05 for the first month using the Millennium Advantage Card, while the same consumer might spend much less, at $15.45 with the RushCard Pay Monthly program. However, the RushCard’s fine print also says if their bank goes under, your money is not protected by the FDIC.

We put together some tips to keep more of your money using a prepaid card, along with other tips on how to best protect your money: Prepaid Card Consumer Tips

  • Consider a regular bank account instead—you get a debit card, a monthly statement, and full consumer protections. Ask to opt-out of “overdraft protection” if you are concerned about overdraft bank fees.
  • Find and read the fee schedule before you buy the card.
  • Your cost will vary widely depending on which card you pick. Try to figure out the costs for two months.
  • Make a list of how you will use the card and compare the fees:
    • Fees for making purchases
    • Monthly fees
    • Fee for depositing money. (Will you set up direct deposit? Do you meet the minimum amount if there is a requirement?)
    • Fee to make cash withdrawals
    • Fee for bill pay (if you use it)
    • Fees to check your balance
    • Dormancy or inactivity fees
    • Customer Service Fees
  • Keep track of your balance –you might face high fees for going over your card balance.
  • We strongly recommend signing up to receive a written statement in the mail to keep track of your money.
  • Do not use prepaid cards to purchase gas at the pump, for hotels or rental cars. If you do, you may find you will not have access to more funds than the purchase and for a long period of time.
  • See if your card has different fees to choosing signature instead of PIN, or selecting the “credit” option instead of choosing the “debit” option.

  • Don’t rely on a prepaid card to build a credit record.

If you can, get a secured credit card, where you make a deposit and get a credit line of the same size. Be sure that credit card has only an annual fee and no additional monthly or other special fees.

For more information on prepaid card gotchas, read the report. The report also has useful charts comparing costs among 18 popular prepaid cards.

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