Credit Scores and Reports

8 tips to reduce unemployment prepaid card fees


For many unemployment recipients, the switch from paper checks to prepaid cards is hardly the win-win situation

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

If you’re one of the more than 6 million unemployment insurance recipients in the United States, the odds are good that you have acquired an additional piece of plastic in your wallet: your unemployment insurance prepaid card.

These prepaid cards (often referred to as debit cards) have replaced the paper unemployment insurance checks in many states, saving the government thousands of dollars, and theoretically, saving the recipients mounds of hassle.

For many unemployment recipients, however, the reality of the unemployment insurance (or UI) prepaid cards is hardly the win-win situation that card issuers banked on when unemployment insurance went prepaid. Unemployment recipients across the country have registered complaints about the “obscene usage fees,” calling them “unconscionable” and “predatory.”

Unemployment prepaid cards are offered as an option in lieu of paper checks in some states, while other states offer only the cards. A few holdout states continue to issue traditional unemployment checks.

Fees and usage rules vary depending on the state and the card issuer, but a fee schedule and list of rules is usually sent to the recipient with the new card. Issuing banks, including Bank of America, U.S. Bank, J.P. Morgan Chase and Wells Fargo, assess fees that range from 10 cents to $3 per transaction, and up to a $20 overdraft fee if the card becomes overdrawn. Even some banking services that are normally free — making a store purchase, checking an account balance by phone, having an ATM transaction declined, or even inactivity — are being nickel and dimed, according to opponents.

The Network Branded Prepaid Card Association (NBPCA), a trade association that supports the growth and success of network branded prepaid cards, as well as other advocates of the unemployment prepaid cards, stress the benefits of such cards. “Unemployment benefits cards, as a replacement for paper checks, save hundreds of thousands of dollars a year, presenting a compelling benefit for the state as well as the taxpayer,” says Kirsten Trusko, NBPCA president and executive director.

Fairfax, Va., marketing specialist Lisa K. (who asked her last name be kept confidential), recently received unemployment via prepaid card for two months — an experience she calls “ludicrous.”

“I was thoroughly confused by the process, and as a college educated, credit card-holding adult, this seemed troubling,” says Lisa. “I immediately set it up so that all monies would be directly deposited into my checking account whenever my unemployment was deposited onto the card. It was the only way I could imagine handling the entire situation.”

Not all customer experiences have been negative. Little Rock, Ark., CPA Kelly Phillips, 30, received unemployment insurance via a U.S. Bank prepaid card for six weeks and has had a positive experience overall. Though Phillips doesn’t normally bank with U.S. Bank, she uses the U.S. Bank ATM to withdraw her UI money — for free, as per the literature she received with her UI card, which warned that fees might apply to nonU.S. Bank ATMs. “If they would traditionally charge a fee, it’s not exempt because it’s an unemployment card,” says Phillips. Heeding that warning — and taking the time to understand the exact usage regulations of her UI prepaid card — means she’s not paying fees and dealing with the problems other recipients have reported.

Making unemployment prepaid cards work for you
Experts and UI card users offer a few tips to help make the unemployment card work for you:

1. Just because it looks like a debit card … doesn’t mean it is a debit card, even though the terms “debit card” and “prepaid card” are sometimes used interchangeably, according to Jennifer Tramontana, director of communications for NBPCA. “Unemployment benefits cards are prepaid cards that are issued by a bank. They look just like a debit card or credit card, but they are a network branded prepaid card,” she says. Prepaid card accounts differ from a debit cards in that debit card funds are typically withdrawn against money in your checking account. Prepaid cards are preloaded with a set amount of cash and generally have numerous fees and restrictions.

2. Read the instructions. You should never skip the fine print, but this is particularly true of your unemployment prepaid card literature. “When consumers take a few minutes to read the welcome kit that comes with the card, they can virtually eliminate all surcharges and can immediately take advantage of the numerous benefits that come with these cards, including immediate availability of funds, fraud and loss prevention and cost-savings,” says Trusko.

3. Follow the rules. Most UI card issuers allow a set number of free ATM withdrawals per pay period (usually one or two). Plan ahead to withdraw enough money to last so you don’t get stuck with withdrawal fees later in the week.

4. Take advantage of free services. Some states, including Maryland and Kansas, and their issuing banks offer free online account management and free phone transfers. However, don’t assume anything is free — check the literature to be certain.

5. Look before you leap. Consider choosing the “direct deposit” unemployment payment option over the UI prepaid card — and have your money immediately deposited into your regular bank account, where available.

6. Withdraw the money and deposit it into your bank account. Depositing unemployment funds into your regular account means avoiding unnecessary fees and having to keep track of your finances, says Kelly Phillips. “The only disadvantage to this is that U.S. Bank is not my bank, so in order to avoid the fee, I have to go there first, and then go take the cash to my bank — and the reason that we do that is because you don’t get a statement,” she says. Because most UI accounts, including those at U.S. Bank, do not offer account statements or free online banking, budgeting can become a nightmare.

7. Stick to what you know. Phillips adds that some UI recipients do not have their own personal bank accounts and are accustomed to using cash for everything. “If you just normally lead a cash life, then continue to do it that way, especially if you’re not used to having a prepaid card,” she says.

8. Set up an automatic transfer. “I would suggest setting up an auto-transfer so that any time money lands on the card, it is automatically transferred to a banking account of your choice. Then, in essence, it’s just like direct deposit,” says Lisa K.

Making your unemployment prepaid card work for you means you’ll have one less thing to worry about during an already trying time in your life.

See related: 9 things you need to know about prepaid cards, 9 ways to budget with a prepaid card, Unemployment benefits switch from paper to plastic

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Credit Scores and Reports

Advanta’s credit shutdown endangers cardholders

As many as 1 million credit cardholders could be forced to search to find a new issuer, and debt holders could be faced with APRs as high as 35 percent, when small business card issuer Advanta Corp officially shuts down its credit card accounts for futur

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more