Because the current economy has made our paychecks smaller and our budget tighter, we want to get that refund check as soon as possible and companies in the tax business know what you're thinking. Even the IRS knows how badly we want that refund check. Just last year, the IRS piloted a program that gave more than 800,000 low income Americans the opportunity to get their refund in the form of a low-cost debit card.
This, according to the IRS, would save a portion of the expense that comes with cashing an IRS refund check. For those without a bank account, check cashing fees can be as much as 3% of the amount making a $3,000 refund check worth only $2,910. Although the program was open to a large number of Americans, according to the IRS, only 2,000 people enrolled, leading to the cancellation of the program for the 2011 tax year.

How About a Prepaid Card?
If you don't have a bank account or you want to keep your refund separate from your other assets, companies like TurboTax, H&R Block, Jackson Hewitt and TaxAct all have prepaid cards available, but is it a sound financial move to get your refund on a card, instead of a check or direct deposit?

According to the proponents of these cards, there are plenty of advantages. First, according to Creditcards.com, you may get your refund up to 10 days sooner than if you wait for the check or direct deposit. Next, you avoid the potential problems that may come with waiting for a check to arrive. If you recently moved, the check could be sent to your old address, further adding to the amount of time you have to wait. During tax time, thieves know to search through mailboxes looking for refund checks and because of that, the IRS has to reissue checks. Finally, just as the IRS attempted with their program, prepaid cards can eliminate most of the check cashing fee that lower income consumers often incur.

The Problems
Of course, convenience doesn't come without a cost and it's those costs that have some consumer advocates crying foul. Prepaid cards of any type often come with plenty of fees. The TurboTax prepaid card has a $5.95 per month maintenance fee if you have less than $50 on the card, and after your one free ATM withdrawal, each subsequent withdrawal will cost you $2.50. The TaxAct prepaid card has a monthly fee of $2.50, an activation fee of $16.95, and fees for speaking to a customer service agent. These fees can quickly add up to more than you would have paid to cash the check.

Helpful Advice
If your refund is coming on one of these prepaid cards, there are a few ways to minimize the fees. First, understand the fee structure. Before using the card, make sure to read about the fees so you know how to avoid them. If you plan to use the card for an extended period of time, consider having your paycheck deposited onto the card. This will eliminate the fees for depositing money onto the card at retailers.

Second, get cash back. Instead of paying the ATM fee, ask for cash back when you use the card. Get enough cash to last you until you use the card again and avoid the ATM as much as possible. Finally, consider starting a savings account for your refund instead of a prepaid card. Savings accounts at local credit unions often come with low minimum balances and will pay you a small amount of interest. When you have an account at a bank, they won't charge you to deposit the check and you can make withdrawals without any transaction fees.

The Bottom Line
Getting your refund check quickly may be important to you, but don't pay unnecessary fees that may come with prepaid cards. Read the fee structure on the card or start a savings account so you can keep most of your refund check.

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