Prepaid debit cards have come under fire for fees, with some critics complaining that they border on predatory lending. It’s no secret that prepaid debit cards have fees, such as a monthly service fee and reload fee. And yes, some cards have fees that are ridiculous and unscrupulous. But while these cards might not be everyone’s alternative to cash or a checking account, they are increasing in popularity.
“Prepaid debit cards represent the fastest-growing non-cash payments in America,” according to a Federal Reserve Payments Study. And a 2012 report released from the Pew Charitable Trusts stated that despite fees, prepaid debit cards “may actually be a cheaper option for some Americans.”
Prepaid debit cards aren’t typically tied to a bank account and they don’t improve your credit, so you may ask, what’s the point?
Everyone has his or her own reasons for going the prepaid route. If you’re not sure whether you can benefit, consider four practical uses for these cards.
1. You can’t get a checking account, or you don’t want a checking account.
Checking accounts are practically a staple in this country. But if you can’t open an account because of past issues, or if you’re unsatisfied with high checking account fees, a prepaid debit card might be your best bet.
Do the math and you may discover that the monthly fee and reload fee for a prepaid debit card can be cheaper than the fee on some checking accounts.
Take the Green Dot prepaid card for example. There’s the $4.95 purchase price, and then a $5.95 monthly charge, which is waived when you load at least $1,000 or have at least 30 qualifying purchases posted to your account in a cycle. There is no fee for direct deposits.
Direct deposit your paychecks onto your prepaid debit card, or cash the check at a bank and load the card at participating retail locations (reload fees vary by location).
2. You need a better way to budget
If you’re constantly swiping your bank debit card for shopping, entertainment and recreation, you may spend more than intended in these areas. A prepaid debit card can help pull your budget into focus.
A couple years ago my husband purchased a prepaid debit card exclusively for gas and lunch. And I know another couple who uses a prepaid debit card exclusively for groceries. It’s an excellent way to make sure you only spend a certain amount in specific areas.
3. You do not have a credit card
Let’s be clear, a prepaid debit card is not a credit card. Therefore, there is no application process and no credit bureaus updates. Not the best news if you’re looking for a card to establish your credit history. But if you have poor credit and need a way to book hotel reservations, shop online and purchase an airline ticket, a prepaid debit card is a godsend.
These cards may not be a credit card, but they work just the same. As long as the prepaid card has a Visa, MasterCard or Amex logo, you can use it wherever these cards are accepted.
4. You’re looking for a safer way to travel with cash
If you’re traveling domestically or internationally, and you want to keep travel money separate from the bill money in your bank account, a prepaid debit card might be the answer. Deposit travel funds on the card, and then use the card to pay for your hotel, car rental, meals and entertainment.
Plus, a prepaid debit card is much safer than carrying around a pocket full of cash. These cards do offer security if lost or stolen. However, the protection varies by card, so make sure you read your contract carefully. Typically, you’re only liable for up to $50 if you report the card as soon as it’s lost or stolen, but up to $500 if you wait two days.