How To Find The Right Prepaid Debit Card

By Tim Parker | April 29, 2012 AAA

If you think that prepaid debit cards are only for those with damaged credit, that isn't the case anymore. According to Fox Business, in 2009 $28.6 billion was loaded on to these prepaid cards, but that number is expected to top $200 billion in 2013. What's behind this more than 600% increase in prepaid card usage in just three years? About 13% of all American households use a prepaid card in their normal activities and many of those include Generation Y consumers. Instead of having checks deposited in to a bank, households can have the money placed directly on their prepaid cards and use their mobile devices or social media profiles to track usage. Technologically savvy customers find that the features of their debit cards match or surpass the features they get from their banks. Because the best cards have an easy-to-understand fee structure that may be lower than a traditional bank, consumers have flocked to these cards.

Not All Good
Not all cards get high marks, which makes shopping to find the best card essential. Because these cards aren't covered by the CARD Act, the protection that comes with traditional credit cards isn't present for prepaid debit cards. Consumer Action posted these warnings about prepaid debit cards.
Fees
Some cards, especially those designed for consumers with subprime credit, may pack on the fees including paying to talk to a customer service representative, a fee if you don't use your card, a fee to load money on to the card, a fee if a transaction is declined and a fee for using ATMs.

FDIC
Unlike a bank that holds FDIC insurance that protects your deposits up to $250,000, a prepaid card doesn't have that same protection. Although unlikely, if the company goes out of business your money may be at risk.

SEE: Who Backs Up the FDIC?

Disclosure
Prepaid cards have very few regulations that govern customer disputes. The fine print may say that you agree not to file.

Lost Card
If you lose your card, you're at the mercy of the card company which may or may not go to bat for you.

How to Pick the Best Card
First, keep the fees to a minimum. U.S. News & World Report put together a list of its favorite cards and minimal fees was its highest criteria. U.S. News & World Report advises to analyze your spending habits and find a card that charges the least amount in the areas where you are likely to amass fees. If you use ATMs frequently, look for a card like the Green Dot Card that charges no ATM fees. If you plan to use your card frequently, look for a card that waives certain fees if you have more than a certain amount of transactions each month.

SEE: Cut Your Bank Fees

Next, look for a fee structure that is easy to understand. Some cards charge fees for most card activity while others may use more of a flat fee model. These flat fee cards may be lower in fees once you analyze your monthly activity. Finally, there are numerous websites that allow you to do a side-by-side comparison of each card. One study by the Pew Research Group found that most consumers don't take the time to compare the different features of the cards before making a decision. Comparing the offers will likely save you money in the end.

The Bottom Line
According U.S. News & World Report, the American Express Prepaid cards and the Suze Orman card were some of the best cards it found for its 2012 report. An increasing number of consumers are using prepaid cards instead of banks. For families with more complex financial needs, a traditional bank or credit union is still essential.

SEE: Tired of Banks? Try a Credit Union

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