Prepaid debit cards have become a popular financial product in recent years for their ability to help people avoid getting into credit card debt. However, in order for you to determine if you want this financial product, it's worth asking some questions to see if it's a good fit for your situation.
Question 1: What are the fees associated with the card?
Prepaid debit cards come with varying fees, depending on the issuer - and most cards can incur ATM withdrawal fees.
According to a 2014 Pew Research study, 98 percent of the prepaid debit cards that were reviewed disclosed that they had out-of-network ATM withdrawal fees (though some offered at least one free withdrawal per month), and the median fee for both in-network and out-of-network ATM withdrawals is $2.
Additionally, the study found that 20 percent of the cards disclosed that they charged a fee even if the ATM was within their network, though some of these offer free in-network ATM withdrawals if certain conditions are met.
According to Katie Brewer, Certified Financial Planner™ at Your Richest Life Planning, ATM fees aren't the only costs to look out for. "Prepaid debit card fees vary widely, so make sure to research the cost for activation, reloading, ATM withdrawals, customer service calls, and any other miscellaneous fees."
One thing to note is that some prepaid debit cards have gotten rid of many of their fees and instead consolidated them into one monthly service fee. For instance, the American Express Serve® card (offered by a Credit Karma marketing partner) has a monthly service fee of $1 (waived if you meet a direct deposit minimum) and no hidden fees, though there are still reload fees and foreign transaction fees to watch out for.
In order to calculate the entire cost of using your prepaid debit card make sure to ask the issuer for a full list of fees before applying. You'll also want to read the fine print in the agreement for any additional fees.
Question 2: Is it FDIC insured?
Since many prepaid debit cardholders are now using these financial products as an alternative to checking accounts, it could be worth trying to find a prepaid debit card that's protected by FDIC insurance.
While prepaid debit cards usually don't have the same level of consumer protections as traditional debit cards (for example, fraud protection is generally more limited), there are some on the market that at least include FDIC insurance. For example, funds for an Edge Prepaid Visa Rush Card account and the Target Prepaid REDcard® (both offered by Credit Karma marketing partners) are FDIC insured.
FDIC insurance covers deposits at insured banks of up to $250,000 per depositor. So if the insured bank fails, you still have FDIC insurance protection for the covered deposits.
3. What are the features associated with this prepaid debit card?
One thing people find attractive about prepaid debit cards are that they normally won't need a good credit score - according to the Consumer Finance Protection Bureau, a credit check typically isn't required in order to get approved for a prepaid debit card, so you could still get one even if you have fair credit or credit that needs work.
Nowadays the benefits of a prepaid debit card extend far beyond avoiding a credit check. Some prepaid debit cards even come with features that were once traditionally reserved for checking accounts, such as direct deposit, online bill pay and person-to-person payments.
Some prepaid debit cards also come with the option to get cash back on purchases or rewards points.
Perhaps one of the best features now available for prepaid debit cards is convenience. Many of these cards, such as the CARD.com prepaid Mastercard (offered by a Credit Karma marketing partner), now come with mobile apps where you can track your balance and even deposit your checks.
Prepaid debit cards can be a great option if you have credit that needs work, a short credit history or if you want to track your spending more carefully because you have a history of overdrafts. Check out reviews from our members on some popular prepaid debit cards to help you make the right choice for your situation.
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