Saturday, July 23, 2011

Are Prepaid Cards Finally A Good Idea?

First 4 digits of a credit cardImage via WikipediaLately the emergence of prepaid cards are making a dent in financial circles. When American Express starts to get into the business people take notice. You see these cards more and more at drug stores, supermarkets, and retailers. You usually find them next to the gift card card display racks.

What are prepaid cards?

Prepaid cards are re-loadable cards that can be used anywhere credit or debit cards are accepted. They're popular with people who can't afford a traditional bank account, or who have been turned off by overdraft fees and other costs. They also offer a way for consumers who don't have credit cards to shop online. They come with monthly fees and reloading fees. If you need plastic and don't have a credit card or a bank account, with a debit card, prepaid cards are your only option.

What's the downside?

According to Consumer Reports, there are many fees and charges. They did a study comparing 19 different prepaid cards.

1. Activation Fees

Twelve of the 19 prepaid cards come with activation fees. The worst offender: First Vineyard card and its $39.95 tariff.

2. Monthly Fee

Sixteen of the 19 carry this fee ranging from $2.95 to $9.95. Most of the cards will waive the monthly charge if a direct deposit — think allowance — is set up. But the Green Dot card actually requires you maintain a $1,000 balance or make 30 transactions per month.

3. Balance Inquiry Fee

All 19 prepaid cards charge a fee to withdraw cash. So you shouldn’t confuse this product with a debit card. But 18 of them are really pushing the envelope and taking an additional 45 cents to $1 if you dare to check your balance at an ATM machine.

4. Customer Service

Perhaps the most surprising fee — and the most offensive one — is a charge to speak with a customer service representative. At least two do this and they are BuyRight and Exact card. If they nickel and dime you just for calling, I can’t imagine the companies will be all that helpful if you have a problem.

5. Inactivity Fees

Like gift cards, some of the prepaid cards carry inactivity fees. The Exact card dares to yank nearly $10 off your account every month it sits idle in your wallet.

One thing is for sure, prepaid cards have many fees and gotchas. Make sure you check out all the fees first before you sign up for them. Bankrate.com has a nice comparison chart to help you in your selection.



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