Prepaid Cards: They May Not Be The Best Deal For Consumers

Date July 30, 2013

Many consumers who are unable to, or choose not to, open a traditional bank or credit union account and credit card turn to prepaid cards.

What is a prepaid card?  Unlike a credit or debit card, a prepaid card is not linked to a bank/credit union account and is not a line of credit. The consumer can load and reload money onto the card and can use it online, in stores, and by phone, wherever Visa/MasterCard/American Express (depending on the mark on the card) is accepted.

While prepaid cards are convenient and a good alternative to debit and credit cards, they can come with their own set of drawbacks. First, because the cards are not tied to a bank or credit union, the prepaid card industry lacks the regulation from agencies like FDIC and NCUA. This means that some consumers may be vulnerable to shady prepaid card practices.

And then there are the fees. Not knowing all of the fees associated with these cards can financially hurt the consumer. Many charge ongoing monthly fees, along with fees for not using the card, needing a replacement card or calling customer service, according to a recent report by Consumer Reports.

However, not all prepaid cards are risky. Some companies have added insurance and lowered their fees. If you are in the market for a prepaid card, be sure to read all of the fine print and make sure you are aware of all of the fees associated with the card.

For more information, as well as a list of Best and Worst Prepaid Cards, click here.

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