The prepaid debit cards market continues to grow.
Bank leviathan, JP Morgan Chase, thrust itself into the prepaid debit card market recently by launching the Chase LiquidSM at about 200 branches. The Campus Edition Prepaid Card, an American Express card, also popped up this month to target consumers who don’t qualify for credit or charge cards.
With the hubbub about these new cards, it’s important to consider how any prepaid debit card could be beneficial or detrimental to how you save money.
With a prepaid debit card, it’s up to you how much money is available on the card from which purchases are deducted. The money you put on the card is all you have available. Discipline is essential. You must save and spend wisely. Otherwise you may dip into your savings just so you can charge more to your prepaid card.
Beware Of Fees
In response to the Dodd-Frank Act and its Durbin amendment, big banks looked for a way to recoup the revenues lost due to limits on debit card fees. Now, not all checking accounts come for free, which causes some consumers to seek an alternative. Prepaid debit cards serve that niche.
And for the banks, the cards serve the revenue-recouping niche. Fees abound. Not every prepaid card has a monthly fee, but those that do, charge as much as $9.95. Loading the card with a certain amount may waive a monthly fee. ATM fees aren’t in short supply either and may apply when a card carrier withdraws money or performs a balance inquiry.
If you choose to get a prepaid debit card, be ready to pay for an activation fee. Then ask about receiving your monthly statements. Paper statements aren’t always free, while electronic ones are. With the possibility of paying extra fees to have a prepaid card, you have to evaluate whether it’s worth it. The last thing you should do is spend your savings or investments on these cards, especially because having one won’t help you improve your credit.
Prepaid Debit Cards Versus Checking
Consumers who don’t qualify for bank accounts remain the primary target audience for prepaid debit cards. So if you qualify for a checking account that isn’t laden with fees or hidden charges, it’s likely a better option. You can probably also use a savings account in conjunction with your checking and easily transfer money.
The upside to prepaid debit cards is minimal, but depends on your finances and habits. For consumers who already have bank accounts with which they’re satisfied, then prepaid cards need not be on their radar. Even if a normal debit card comes with a few fees, a prepaid one will probably pale in comparison.
Do your research. That consumer-beware idiom applies more than ever when you’re deciding how to best handle your money. With the prepaid debit cards market expanding, there might be one that’s more favorable than your current debit card. But don’t make that assumption and end up pulling money from your savings to pay off fees. Be smart.
Image: Flickr – Images_of_Money