Are you utilizing a prepaid debit card or contemplating it? If you don’t trust traditional banks with your funds yet shun the idea of lugging around large amounts of cash, a prepaid debit card could seem like the ideal option. However, you should be aware of the underlying charges that exist with such cards.
Unlike conventional bank cards, prepaid cards are not tied to a checking account. In essence, you don’t require a bank account to operate one. However, a downside is that card-issuing companies generate revenue through customer levies, skyrocketing the users’ expenses to several hundreds of dollars annually.
I’ve dabbled with prepaid cards previously, aiming to evade exorbitant banking charges, but it’s crucial to understand that prepaid cards also inflict their share of costs. Here are four commonly overlooked charges and ways to bypass them:
1. CARD TOP-UP
Loading funds onto your card can be the key downside of a prepaid card. While some offer free direct deposit, other instances may require a charge to deposit income from sources like your paychecks. According to an analysis by NerdWallet of the FDIC’s annual survey on unbanked and underbanked households, prepaid card users without a cost-free direct deposit could shell out $182 per year just to access their own money. Most prepaid cards allow reloads via Western Union, but it comes with a reload charge. For instance, NetSpend, a prepaid card, charges you $2 to $3.95 whenever you opt for a reload pack, the only mode to pump money into the card.
2. INACTIVITY CHARGE
Some prepaid cards might charge for not being utilized over a specific period. This could become an issue if you stop using the card due to travel or to cut down on spending. The Consumer Financial Protection Bureau allows prepaid card companies to impose either a monthly fee or an inactivity fee, but not both. Typically, this fee starts from 90 days to a year of non-usage and recurs every month thereafter — definitely not an attractive prospect.
3. WITHDRAWAL CHARGE
Cards like Ace Cash Express Prepaid cards only permit cash withdrawals up to $100 a day without a fee. Larger withdrawals invite an extra fee. This could prove inconvenient and needlessly expensive for big-ticket payments. Moreover, prepaid cards are known to levy additional ATM usage charges. ATM fees reached a record high in 2018 for the 18th consecutive year. It is unreasonable to pay for accessing your own hard-earned cash.
4. TRANSACTION CHARGES
To add to the financial strain, prepaid cards like Opt+ charge you a fee for every purchase. Although just a dollar, these fees accrue over time. Opting for their other prepaid card to bypass this charge, though, means you’ll face a monthly service fee ranging from $5.95 to $8.95.
SUGGESTED COURSE OF ACTION
Admittedly, prepaid cards are no longer my top recommendation. While safer than carrying cash, their convenience is marred by accumulated fees. Rather, choose a bank or credit union with minimal or no charges. Online banking is a good option as they offer better interest rates and easy mechanisms for direct deposits and mobile check deposits. Plus, with services like Capital One 360, there’s an absence of monthly maintenance fees or minimum balance requirements.
In conclusion, if bank fees concern you, prepaid cards might not be an ideal alternative. They are fraught with various hidden fees and restrictions. If you’re anxious about preserving your credit or scouting for alternatives to traditional banking, you can find better options without losing money to unnecessary fees. Avoid plunging into a money pit of charges!
