Pre-paid debit cards are often viewed as convenient alternatives to cash and expensive checking accounts. But, Buyer Beware!
While there may be many advantages to these cards, there are also many disadvantages to consider before deciding if these are a good option for you.
Below you will find some of the major advantages and disadvantages associated with these cards. Keep in mind that different cards have different policies. The statements below simply highlight important information you should consider.
Advantages
- No credit card bill to pay.
- Avoid banks by loading money onto the card through phone, web, or at ATMs.
- Anyone over the age of 18 can apply without regard to credit history.
- Unlike credit cards, the consumer does not carry a credit balance on a pre-paid card. This makes it easier to avoid debt.
- If your card gets lost or stolen, the cardholders losses are limited only to the amount of money loaded onto the card.
- Usually no overdraft fees. (Please Note: Some pre-paid debit cards offer an opt-in over-draft feature.)
- Some pre-paid debit cards allow for automatic bill pay.
Disadvantages
- Pre-paid debit cards do not help you build credit.
- Many pre-paid debit cards charge fees before you even start using them. There is usually a monthly fee and fees on common transactions such as ATM withdrawals, card replacement, direct deposit, and reloading the card. There is even a fee associated with cancelling pre-paid cards.These fees can add up so that you are losing money when you try to use your money.
- Fees are typically hidden in fine print on the card provider's website.
- Different cards have different policies regarding the charges you can make. For example, not all cards allow for direct deposit or automatic bill-pay.
- Many pre-paid debit card providers charge fees to view account balances or simply do not offer the services.
- Pre-paid debit cards do not carry the same protections that regular debit cards have in the event of fraud. Any protection offered on a pre-paid debit card is voluntary, subject to change, and not mandated under federal law.
General Information
After working through the pros and cons, you may decide that a pre-paid debit card is the best or only option that you have. Here are some tips for using these cards:
- Shop around and find the pre-paid debit card that works with your budget. It may help to make a list of the types of purchases you intend to make with the card and find one that meets your needs. The Consumer Financial Protection Bureau (CFPB) also has a toolkit that can help you understand your needs and choose the best card to fit your situation.
- Be knowledgeable about your purchase. Read the information on the card itself, the packaging, and the terms and conditions on the provider's website. This will help you avoid unforeseen or hidden fees.
- Keep a careful eye on your account balance. This will help you avoid overdraft fees (if applicable) and help to prevent possible fraud.
- Know who to contact if you have any problems or issues with your pre-paid debit card. This information is usually on the packaging itself or the company's website.
Updated August 2022
PTLA #059
