Americans Are More in Love With Prepaid Cards

These cards have lower fees and better terms than they did a few years ago, but they do have drawbacks.

American consumers have grown increasingly fond of reloadable prepaid cards, putting about $65 billion of their money on them in 2012 — double the amount loaded in 2009. And the cards are much more user friendly and have fewer fees than when they arrived on the scene several years ago, says a new report from The Pew Charitable Trusts.

Pew wrote:

The increasing popularity of the cards is good news for consumers who want an alternative to traditional checking or credit accounts — particularly because these cards have become more affordable over the past year and, in many cases, offer lower and fewer fees than basic checking accounts.

About 12 million Americans use a prepaid card at least once a month, Pew says. The average household income of a prepaid card user is $30,000 a year.

Many of them have had or still have checking accounts and credit cards, and 2 in 5 who’ve had a checking account said they closed or lost the account because of overdraft fees.

To many users, a prepaid card is a tool to keep them from overspending.

The report said:

Most customers’ primary motivation for using prepaid cards is to gain control over their finances. The top four specific reasons they use the cards are to:

  • Buy things online.
  • Avoid credit card debt.
  • Avoid spending more money than they have.
  • Avoid overdrafts.

But these cards have some drawbacks, and people need to be aware of them. Pew says:

  • They don’t come with the limited liability protection that you’d get with a checking account.
  • Not all cards provide Federal Deposit Insurance Corp. protection for your funds in case the issuer goes belly up.
  • “Arbitration agreements, which require a customer to settle any dispute using a private, third-party decision maker, are increasingly included in prepaid cardholder agreements,” the report says.

Have you used a reloadable prepaid card? Tell us why in the comments below or on our Facebook page.

Stacy Johnson

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  • Jennifer Tramontana

    It is important to get the facts straight with respect to the protections and regulations for prepaid cards.

    Prepaid cards are issued by highly regulated banks or financial institutions. Since 2008, cardholders receive FDIC pass through insurance. Network branded prepaid cards come with Zero Liability protections for lost or stolen cards used for unauthorized charges, card replacement and purchase dispute rights. Regulation E coverage (part of the Electronic Funds Transfer Act) applies to payroll cards.

    The most popular prepaid card programs provide several ways for cardholders to access cash without incurring fees including use of in-network ATMs, surcharge-free ATMs, free online balance inquiry, free cash back with purchase, free purchases and free electronic bill pay. All members of the industry trade Association, The NBPCA, support strong disclosures and consumer protections.

    Consumers chose these financial instruments because they offer a simple and effective way to budget and manage their finances and offer a strong value compared to alternatives. Their growth is a testament to the high levels of satisfaction consumers have with the product.

    -Jennifer Tramontana for NBPCA

  • ron

    I think another reason is a lot of companies are going to this to pay their employees. Saves them time printing check or replacing lost check or some people do have checking accounts. saves a lot of work

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