In this age of electronic transactions, it’s hard to shop without plastic. Credit cards and debit cards make life much easier, allowing you to swipe for purchases instead of counting up the dollars and cents needed to take care of your balance. Unfortunately, past financial problems make it hard for some people to get access to a credit card and sometimes even a debit card. For those consumers, prepaid cards are an alternative. But, these cards aren’t always the godsend they seem to be.

What is a Prepaid Card?

A prepaid debit card is very similar to a debit or check card that comes with a checking account. While there’s no checking account attached, some prepaid cards mimic checking accounts in that you can pay bills with the account – paying via paper check typically comes with a cost.

Prepaid cards are typically sold in certain drugstores, discount stores, and convenience stores and online. You can fund the prepaid balance via cash at the same location you purchased the card – there’s often a fee for this – or through an electronic bank transfer or direct deposit. Bank transfers and direct deposit are often free. Purchases made on the prepaid card are deducted from your balance. Once your balance is $0 you have to load more money onto the card before you can spend again.

Though they’re virtually identical, prepaid cards are not credit cards since there is no extension of credit. You’re not borrowing any money when you make purchases on a prepaid card. Therefore, you don’t have a balance to repay. There’s no credit check required for a prepaid card, your transactions aren’t listed on any of your major credit reports, and your transactions won’t directly benefit your credit score.

While prepaid cards ease the burden of not having a credit card or checking account, limitations still exist. For example, some prepaid cards do not allow you to pay for gas purchases at the pump. Instead, you’d have to go inside to prepay your gas purchase. Also, prepaid card owners typically can’t reserve a car or hotel with the prepaid card. But, you can use your prepaid card to settle the final balance once you turn in the rental car or end your hotel stay.

Prepaid Card Fees

Fees, which vary from one card to the next, are the biggest complaint about prepaid cards. You may be able to avoid fees on some cards while fees are required on other cards. For example, many prepaid cards have a monthly maintenance fee that you might avoid if you load a certain amount of money on the card during the month. Other cards charge the monthly fee regardless of the amount of money you load.

Typical fees include: an account opening fee, monthly or annual fee, reload fees, ATM fees, bill pay fees, fee for a paper statement, and fees for calling customer service.

In December 2011, U.S. Senator Robert Menendez (D-NJ) introduced the Prepaid Card Consumer Protection Act, a bill that would make many prepaid card fees unlawful. Some of the fees that would be outlawed include: annual fee, overdraft fees, usage fees, transaction declined fees, in-network ATM fees, balance inquiry fee, and any fee that would make the account balance negative. Prepaid cards would still be able to charge monthly fees, reload fees, bill payment fees, and activation fees.

Choosing a Prepaid Card

When you’re choosing a prepaid card, there are a few things to keep in mind.

• How easy is it to load money onto the card and what’s the cost of doing so?
• How easy is it to find out your balance and is there a cost of doing so? For example, can you create an online account for checking your balance or do you have to do a fee-based ATM balance inquiry?
• Is there liability protection for fraudulent transactions? Will you get your money back if someone uses your card without your permission?
• What are the monthly or annual fees and how can you avoid them?

There are far more prepaid options than the ones you see advertised on TV and the ones you see at the grocery store. To make the most of your money, check out a few different options before deciding on a single card.


Source: GovTrack.us