Is a Prepaid Debit Card Really Cheaper and Better than a Bank Debit Card?
A few month ago, my husband received an unsolicited Visa Debit Card from NetSpend and I wrote about it here on Wise Bread. I admit that I did not know much about NetSpend at that time besides that they were sending out unsolicited cards. According to the comments many people received these unwelcomed cards, and some were even sent to to their pets, underaged kids, and ex-husband. What I found interesting was that several commenters defended prepaid debit cards like NetSpend and stated that it was cheaper than getting a bank account. In response to these comments, I decided to look into the fees and services of prepaid debit cards.
First of all, I looked at the NetSpend fee schedule. There seems to be two types of customers: Pay-As-You-Go and Fee Advantage customers. The Pay-As-You-Go customers have to pay $2.00 for each PIN purchase, and $1.00 for each signature purchase. The Fee Advantage customers have to pay $9.95 as a monthly service fee and both types of customers need to pay $9.95 to get a card. There is also a charge for loading money onto the card determined by the local distributors, and non-internet account balance inquiries cost 50 cents each. Each ATM withdrawal costs $2.50, and each ATM decline costs $1.00. Additionally, if there were no transactions within 90 days then there is an additional $5.95 per month account maintenance fee. Additionally, if you try to close your account you will be charged a fee of $5.95. Similar services like Green Dot also has a full menu of fees. In the case of Green Dot the company continues to assess a monthly charge even after the balance falls below $0.
So how does this compare to a bank account? It is true that there are no overdraft fees on these cards, but as long as you watch your balance carefully you can avoid overdrafts fees on a bank account. Many banks also offer free checking accounts with minimum balance requirements of under $100 with no account maintenance fees. The checking accounts usually come with a debit card that can be used at the bank's ATMs and many stores without a fee for every single swipe. Also, debit cards associated with checking and savings accounts have much better fraud protection than prepaid debit cards. Usually credit cards and debit cards associated with deposit accounts limit your liability in case of fraud and the money you deposit in any FDIC member bank would be insured. However, prepaid debit cards do not seem to have that protection so you may be on the hook for any fraudulent activity. Finally, I think it is ridiculous that many of these prepaid cards charge people for loading money onto the card. I have never had a bank account that charged me for depositing money.
I think the main issue with these prepaid cards right now is that they are much less regulated than bank accounts and credit cards. This lack of regulation allows them to send out unsolicited cards, and also nickel and dime those who are unable to get a regular bank account or credit card. The potential for fraud is also very high since anyone can get one of these cards very easily due to the way they are being distributed. I understand that these cards may be the only choice for those out there who cannot get a regular bank account or credit card, but it really seems that the industry is taking advantage of those who need every bit of their cash by assessing all of these fees. If you do have one of these prepaid cards that charges for every little thing you do, make sure that you avoid as many fees as you can by minimizing the number of transactions you make and also meet any deposit requirements. It is also possible to shop around for the company that has the least fees.
For further reading about a variety of prepaid card fees and problems the New York Times just published this a great article titled Prepaid, but Not Prepared for Debit Card Fees. Do you have one of these cards? How do you minimize the fees? Do you believe that they are better than bank accounts?