May 8, 2012
Do you or a family member have a prepaid card? Are you paying fees on it? You probably are.
What is a prepaid card?
Prepaid cards are commonly referred to as prepaid credit cards, but they function more like debit cards than credit cards. Credit cards extend lines of credit to cardholders, whereas a prepaid card only uses money loaded on the card. Basically, you deposit deposit money into your prepaid account and use the funds when you need them. You don’t need to have a bank account, and typically those who cannot get a traditional bank account will use prepaid cards. But there are things you need to know before you purchase one.
Many people get a prepaid card as an alternative to a debit or credit card. But these can come with a high cost. The average prepaid card costs nearly $300 a year in basic fees, such as monthly charges, ATM fees and reloading fees, according to a study of 40 prepaid cards conducted by credit card comparison site NerdWallet.
Debit cards, if managed properly, shouldn’t cost you a dime. And if you stay within your financial institution’s ATM network (or Co-Op Network if you are with a credit union) you shouldn’t be paying any ATM fees.
A major misconception that many consumers have about prepaid cards is that it will help them build their credit. This is not true – prepaid cards are not credit cards therefore they will not affect your credit in any way.
A good rule of thumb is to always get as much information as you can before you embark on any new financial endeavor. Ask the issuer about each and every fee associated with the card, as well as any restrictions.
For more information on prepaid cards and other major misconceptions about them, read this article.
For information on MCCU’s Free Debit Card, click here.