Prepaid cards can be a useful alternative to credit cards and checking accounts, but they vary radically in cost and convenience. Here's what to look for.
This post comes from Logan Abbott, editor of the credit cards section of MyRatePlan.com.
In today’s world, credit cards are common – some might even call them necessary. But there are those who either don’t want, or can’t get, that kind of plastic. It can be difficult to get approved for a credit card, and some people simply want to avoid the temptation to borrow and overspend.
There are also those who want to avoid debit cards, maybe because they come attached to checking accounts with high fees.
Enter prepaid cards – the solution for those unwilling or unable to carry a traditional credit card or deal with a bank account. But while prepaid cards don’t charge interest or require a checking account, they’re not cheap or hassle-free. A study by NerdWallet found the average cost of prepaid cards to be more than $300 per year. So if you can qualify for traditional checking accounts and credit cards, especially those offered by lower-cost providers like credit unions, you’ll be better off.
But if there’s a prepaid card in your future, at least try to get one with the lowest possible fees. Here’s what to look for…
1. Monthly fees
Prepaid credit card monthly fees range from $0 – $9.95. Ideally you would like to pay the smallest monthly fee possible, but if you have to swallow a fee somewhere a small monthly fee is usually an acceptable alternative and allows you to easily budget the cost of your card. There are many cards like American Express that don’t charge a monthly fee. Look for cards with no or low monthly fees.
2. Transaction fees
Transaction or withdrawal fees can range from $0 – $.035 for each transaction. If you plan to frequently use the card for small purchases this can get expensive. Find a card that doesn’t charge transaction fees. The US Bank Convenient Cash Card is one example.
3. Deposit fees and options
Many cards offer one free deposit per month, then charge to reload your card. Look for cards that offer free deposits, as well as a variety of deposit options, like ATM’s, Banks, WalMart and convenience stores. The ATIRAreload Card is one example of a card that doesn’t have a reloading fee.
4. Cash withdrawals
If you need to make frequent cash withdrawals, choose a card that allows access to ATMs, but be aware of withdrawal fees. Find a card with a large network of ATMs and offers free or low withdrawals. If a company offers free withdrawals at select locations, make sure they’re convenient for you. Chase Liquid‘s card, for example, offers free ATM withdrawals from any Chase ATM.
5. Money availability
If you need to quickly access to your money, availability can be a big issue. Many prepaid companies allow for direct deposit of paychecks at no charge, but some companies may not allow your deposits to be accessible for up to 10 business days. Always check on the rules and regulations for accessibility to deposits.
The Bottom line
Many prepaid cards come loaded with fees and other potential problems. The only way to know the right card for you is to carefully examine what they are. It’s not difficult: simply look at the terms and conditions before applying, check out the fees, then see how they’d impact your planned use of the card.
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