Once banished to birthday gifts and rebuilding credit, prepaid debit and credit cards are building a growing fan base. Consumers irritated by bank fees are turning to prepaid debit cards as an alternative method of payment. Others are choosing to forego bank accounts all together and only use prepaid cards. Parents of teens have started doling out cash on prepaid debit cards instead of handing over cash or mom and dad’s credit.
Why Use A Prepaid Card?
While it might not be a good idea to bury all your cash in the backyard instead of having a bank account, pre paid cards do have their uses. New laws are in place which allow employers to issue prepaid debit cards in lieu of mailing a paper paycheck (if the employee does not opt in for direct deposit). State governments have been using prepaid cards for years as an efficient way to distribute social security benefits.
The FDIC estimates as many as 7.7% of Americans are unbanked, households which could benefit from the convenience of a prepaid card and avoid check cashing fees in the process. Prepaids tend to have all the conveniences of traditional debit or check cards, so there’s very little hassle involved with using them. They also tend to have fees, though not as exorbitant as those banks charge.
How Prepaid Debit Cards Work
Unlike a traditional bank card, prepaid cards aren’t linked or attached to a bank account. Customers load a card up with cash upon purchase, and can reload the card to make payments or purchases down the road.
While prepaid cards have traditionally been directed at people with poor credit, more people with good credit are using these cards as an alternative to avoid bank fees. Proponents of prepaid cards also point out that they can be good tools for money management, like to curb overspending or assist in sticking to a budget.
Where to Find Them
Prepaid debit cards are offered by banks, financial institutions, and credit unions. A prepaid card can be used anywhere that a credit card can be used usually. Most prepaid cards have a Visa or MasterCard logo on the card. All merchants that accept major credit cards will also accept this type of card, similar to a traditional check card linked to a checking account. Account activity for a prepaid card can be tracked online for most issuers, just like a traditional debit card. Most cards also allow you to reload the card with cash online, too.
Potential Cons
While the prepaid debit card industry touts itself as a more consumer friendly option than bank cards, compare fees before you take the plunge. Check on minor details that could end up being big headaches, like residual balances and whether or not you can withdraw cash.