Prepaid debit cards gaining popularity, but watch those fees
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SEATTLE -- The switch is on. Many young people and those who don't qualify for a checking account or who choose not to use traditional financial products are choosing to use prepaid debit cards.
And while prepaid card sales are soaring, the number of people with credit cards, checking accounts, and bank debit cards is actually falling.
Prepaid cards are heavily advertised and they're easy to get.
New research from the Pew Trusts found that many people see prepaid cards as a way to control their spending and stick to their budget. They said they'd rather pay the $3 and $4 fees to load and reload the cards than pay a $35 bank overdraft fee.
Consumer Action, a San Francisco advocacy group, just released a survey of the prepaid card market. They examined 28 cards from 11 issuers.
"Many of these prepaid cards are filled with fees," said Ruth Susswein with Consumer Action. "Now there are ways to avoid the fees and there are cards with just a few fees. But you've got to watch out for the fees, because some of them are loaded with 'gotcha' fees."
There are fees for reloading money, ATM cash withdrawals, balance inquiries, or making a purchase without enough money on the card.
There may be a fee if you close the account or an inactivity fee if you don't use the card for a few months. And most prepaid debit cards have monthly maintenance fees. Some cards make it possible to avoid the monthly fee if you load a certain amount on the card each month.
The bottom line: prepaid cards can be a useful money management tool for people who need a little extra discipline -- you can't spend more than you put on that card.
But you've got to shop around and find the card that's best for you, otherwise those fees can really add up. And remember this: Transactions from prepaid debit cards are not reported to the credit bureaus so they do nothing to help you build a good credit history.
And while prepaid card sales are soaring, the number of people with credit cards, checking accounts, and bank debit cards is actually falling.
Prepaid cards are heavily advertised and they're easy to get.
New research from the Pew Trusts found that many people see prepaid cards as a way to control their spending and stick to their budget. They said they'd rather pay the $3 and $4 fees to load and reload the cards than pay a $35 bank overdraft fee.
Consumer Action, a San Francisco advocacy group, just released a survey of the prepaid card market. They examined 28 cards from 11 issuers.
"Many of these prepaid cards are filled with fees," said Ruth Susswein with Consumer Action. "Now there are ways to avoid the fees and there are cards with just a few fees. But you've got to watch out for the fees, because some of them are loaded with 'gotcha' fees."
There are fees for reloading money, ATM cash withdrawals, balance inquiries, or making a purchase without enough money on the card.
There may be a fee if you close the account or an inactivity fee if you don't use the card for a few months. And most prepaid debit cards have monthly maintenance fees. Some cards make it possible to avoid the monthly fee if you load a certain amount on the card each month.
The bottom line: prepaid cards can be a useful money management tool for people who need a little extra discipline -- you can't spend more than you put on that card.
But you've got to shop around and find the card that's best for you, otherwise those fees can really add up. And remember this: Transactions from prepaid debit cards are not reported to the credit bureaus so they do nothing to help you build a good credit history.
