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Prepaid debit cards could present hidden costs

Posted September 30, 2013

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— Prepaid debit cards are exploding in popularity. They can be used just like regular debit cards to make purchases in stores, online and even to withdraw cash at an ATM.

Michael Feight almost always uses his Green Dot prepaid card.

“It’s convenient. It’s accepted everywhere Visa is accepted,” Feight said.

Feight is very careful of how he uses the card. He says he is able to avoid most fees.

Prepaid debit cards do not come free. A Consumer Reports investigation looked at different cards and found that fees can be a big problem.

“You can be charged an activation fee, a ‘swipe fee’ every time the card is used, a monthly maintenance fee and even a ‘dormancy’ fee for not using the card often enough,” Margot Gilman of Consumer Reports said.

Consumer Reports found that some of the highest fees are on the AccountNow Gold Visa prepaid card.

It charges $9.95 a month, as much as $4.95 to load money onto the card, and $2.50 for every ATM withdrawal.

The NetSpend Pay as You Go card charges every time it is used.

“For a daily user of the NetSpend Pay as You Go card, the ‘swipe’ fees could add up to hundreds of dollars a year,” Gilman said.

Prepaid debit cards don't come free Prepaid debit cards don't come free

The worst card in the Consumer Reports investigation was the American Express for Target.

“You can only reload it at a Target store unless you have a bank account or direct deposit,” Gilman said. “To get cash from an ATM almost always incurs a fee. And the card isn’t FDIC insured,” she added.

Consumer Reports did find cards that offered good value and online convenience to customers.

They include the Emerald Card form H&R Block, the Bluebird Card with direct deposit and the Green Dot Card.

As Feight has found, almost all fees can be avoided if your use the card 30 times a month and reload with direct deposit.

With most prepaid debit cards, figuring out the fees can be tough. Always read the fine print carefully.

Also be aware prepaid cards are not protected by law against loss or theft. Most issuers have voluntary protections in place.


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  • snowl Oct 3, 2013

    Prepaid cards are for those who don't qualify for a bank account or who choose not to be a banking customer for many reasons. Employers also have debit cards for direct deposit of employees payroll but those cards cost about $12. per month for the employee using it.

  • -Enter Screen Name- Oct 1, 2013

    @ProzacDispenser: While I do not argue your points, I prefer to use the rewards card and get the rewards. If I use a pre-paid card to save the merchant money, I'm basically subsidizing all of the other people that do use rewards cards, and I won't see any cost savings.

    If merchants give different price points for different methods of payment, that's another story. But that is the exception and not the rule right now.

    Plus, many credit cards that offer rewards are free, so they are cheaper for me than pre-paid cards, so I get the savings back there.

  • TeresaBee Oct 1, 2013

    Paypal prepaid is protected and no fees except maybe a cash withdrawl from ATM but not all ATMS.

  • LuvLivingInCary Oct 1, 2013

    All you guys that think those high reward credit cards are great should really look at what they are costing businesses and merchants...about 3-4%. If you think you are getting something for nothing you need to think again...you are paying for it hidden in the price of the product when you buy.

    now prepaid debit cards are close to 1%.

    personally i have one that i have low amounts of money in and use it exclusively for online purchases. if you've ever had fraud on your credit/debit card you will understand my point.

  • Realamerican71 Sep 30, 2013

    I use my American Express for everything. Online purchases, gas, groceries. Pay the bill once a month. Easy as pie. Have a debit card from my bank, never use it. This allows me to keep a high daily average balance and gives me free checking. And also builds reward points. Why in the world would anyone use a prepaid debit card in the first place?

  • lwe1967 Sep 30, 2013

    The lenders can always find out how to rob the public "legally" and get away with it. The card is prepaid. It should not be incurring any fees. The money is there up front.

  • sllenterprises Sep 30, 2013

    Or instead of prepaid debit cards, a person could get a free checking account at a bank or credit union where there are no fees at all! I really don't understand why a person would get a prepaid card not attached to an actual bank unless the account is to protect against unathorized use! If my atm visa card with bank of america got stolen, I'm protected to a degree but would green dot prepaid debit card help me if someone used my card without my knowledge? If the answer is yes, then it might be good to try, if the answer is no, then they're worthless!