growing number of Americans using reloadable prepaid cards as budgeting tools, consumers
should check out the fine print, as the costs associated with the cards are all
over the map, according to a 2012 Bankrate.com/CreditCards.com Prepaid Cards
2012 PREPAID CARD SURVEY:
IT PAYS TO COMPARISON SHOP
The 2012 CreditCards.com/Bankrate.com prepaid card survey shows how widely their fees vary, in both size and volume (see chart). Experts advise that those shopping for a prepaid card should look up the fee schedules of several different prepaid cards and:
Count the sheer volume of fees. How many are there? The more fees there are, the more likely you are to trip over one -- or several.
Think about how you would use the card, and whether those activities will help you avoid fees, or trigger them. Will you direct deposit a paycheck? Do you use ATMs a lot? And then find the card that will charge the fewest fees for your style of use.
year, about $183 billion was loaded onto reloadable prepaid cards, financial
products that look and act like debit cards, but use preloaded funds rather
than money drawn directly from a bank account. The market has exploded in
recent years, with analysts predicting the prepaid market will be more than 36
percent larger in 2013 than it was in 2007, according to payments consulting
firm Mercator Advisory Group. As a result, consumers have a lot to choose from,
both in terms of features and in price.
the 18 prepaid cards in the survey, monthly service fees are the norm for 12 of
them. On the high end are the First California Bank Achieve Card MasterCard and
the Bancorp Bank AchieveCard Visa with a $9.95 monthly charge. Others charge
between $2.50 and $5.95 per month, while six cards have no monthly fees at all.
monthly service fees are only a small part of the picture. For example, the PNC
Bank SmartAccess Prepaid Visa Card comes with a $5 monthly service fee, but has
few other fees attached. On the other hand, the Bancorp Bank RushCard-Pay As
You Go card has no monthly service fee, yet charges for almost everything
else, including ATM withdrawals, balance inquiries, point-of-sale
transactions and signature purchases.
of the 18 cards come with an activation fee, ranging from $3 to $14.95, though
two MetaBank cards -- the NetSpend Pay As You Go and BlackHawk Network PayPower
-- waive that fee if you get the cards online. Eleven issuers charge ATM
withdrawal fees, which range from $1.50 to $2.50 per withdrawal. However, some
issuers will waive the fees under certain circumstances, such as if users use
direct deposit or a bank transfer to load the cards.
service can come at a cost, as seven cards in the survey come with fees for
live customer service, ranging from $0.50 to $4.95, though a couple offer one
or two free calls a month before charges kick in. See prepaid card survey chart for a full breakdown of fees.
A shifting market
prepaid cards have been marketed in the past to people without bank accounts, that
is now beginning to change. Approximately 15 percent to 20 percent of people
say they use prepaid cards as a budgeting tool, says Ben Jackson, senior
analyst for the Mercator Advisory Group. For example, a consumer may put money
on a card for entertainment expenses. When the money runs out, the entertaining
for the month stops.
One person who has done this is Marieta Hauser of Ulysses, Kansas. Hauser has used
prepaid cards on Internet and travel purchases. "This is a way I can control the costs
because when it's out of money, it's out of money," she says.
Some parents are
even using prepaid cards as a way to distribute allowances or provide funds to
children away at college.
Another factor fueling the growth of prepaid cards is security. Some who feel
uncomfortable using their credit cards for online purchases might be more
willing to use a prepaid card since the risk is limited to the amount that's on
Finally, prepaid cards
appeal to certain segments of the population. Eighteen percent of members of
Generation Y use prepaid cards, says Beth Robertson, director
of payments research for consulting firm Javelin Strategy & Research. "Younger
consumers are often not eligible for credit cards, so prepaid gives them the
flexibility of the card and the ability to not have to carry cash," Robertson
says. Also, 18 percent of the underbanked population use prepaid cards
regularly, Robertson adds.
aren't in total favor of the cards.
criticism is that prepaid cards don't have the same protections as debit and
credit cards. If your credit card is stolen, the Fair Credit Billing Act limits
liability for unauthorized credit card charges to $50. The Electronic Fund
Transfer Act limits losses to $50 for debit and ATM users. While some prepaid
card issuers offer comparable protections, it's up to the issuer's discretion,
so you could conceivably be left in the lurch if someone makes off with your
This is a way I can control the costs
because when it's out of money, it's out of money.
A fan of prepaid cards from Ulysses, Kansas
"We believe prepaid
cards should offer the same protections as the traditional debit card tied to a
bank account," says Michelle Jun, senior attorney with Consumers Union. Efforts
are currently under way to convince the Consumer Financial Protection Bureau to
implement regulations, Jun adds.
have problems with the fees associated with prepaid cards. Personal finance
experts Ryan Mack, chief executive officer of Optimum Capital Management, and
John Ulzheimer, president of The Ulzheimer Group, recently went on a media
tour criticizing celebrities such as Suze Orman and Russell Simmons for
endorsing prepaid cards because alternative payment methods such as debit cards
and credit cards may have fewer fees while helping consumers to establish better
credit, Mack says.
But the fees are
necessary to cover transactions, customer service and other fees associated
with servicing the account, says Brad Hanson, executive vice president of Meta
Financial Group and prepaid card issuer MetaBank.
And with some of the
new charges being levied by banks, "it starts to look better for prepaid
cards," the Mercator Advisory Group's Jackson points out.
the concerns, there is little chance that the prepaid market will slow down or
shrink any time soon. "There's enough shellshock from the recession that people
are going to be careful with their money for some time," says Jackson. "Prepaid
can help with that."
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