Photo (cc) by ell brown
About a decade ago, when prepaid debit cards were new, they quickly earned a reputation as fee-laden plastic marketed mainly to the “unbanked” or the “underbanked” — people whose credit histories or mistrust of financial institutions made them poor candidates for traditional banking services. While the cards were (usually) an improvement over paying check-cashing services and having to buy money orders to pay bills, the fees were substantial.
But if that’s the last you heard of prepaid cards, it may be time to take another look.
Large, mainstream banks have gotten into the game — with much more consumer-friendly terms. While some prepaid debit cards still carry high fees, that’s not true of all of them. As a result, these cards have become much more popular, and many parents have found them to be a convenient way to provide an allowance or emergency cash for older kids.
But what if you have solid credit and you don’t have allowance-age kids? You still might benefit. Here are some unusual ways a prepaid card might be useful to you:
1. Protecting an elderly or disabled loved one
Sometimes credit card bills are an early — and costly — symptom of cognitive decline. But do you really want to take someone’s plastic (and feelings of independence) away? A prepaid card that allows you to set up and monitor subaccounts could be the answer. You could load enough funds for expected expenses, and sign up for mobile alerts. Thus, if all is well, it’s a non-intrusive way to make sure things stay that way. Unusual activity could tip you off to a lost card or to someone attempting to defraud a vulnerable older relative.
2. An all-expenses (pre)paid vacation
Anticipating a vacation is part of the fun. And if you’re putting aside money from every paycheck, chances are you’re daydreaming about that holiday, too. Add to that the happiness you’ll feel when you know your vacation spending is already paid for; you won’t be getting a bill. Caveat: Keep your PIN in a secure place (and not written on the back of the card!) and quickly report to customer service if it’s lost or stolen to limit your financial liability. And, as with a credit card, you should have a backup.
3. Mobile check deposit
If you watch commercials where people take a snapshot of a check with their phone to deposit it — and you have to find a deposit slip, envelope and stamp to get your deposit to your credit union — you may want to consider getting a prepaid card with mobile banking that includes mobile check deposit.
4. Controlling spending
A debit card can act as a virtual envelope system. If you are trying to cut down on grocery expenses, for example, put the amount you intend to spend on a prepaid card, and don’t take another means of paying with you to the store. Knowing that the card will be declined if the total exceeds the amount on the card can be a powerful incentive to stick with your good intentions. Likewise, if your weakness is shopping online sales, set a monthly amount and keep your prepaid card beside your computer.
5. Helping an addict in recovery
There is now a card (called Next Step) that allows you to set merchant restrictions (no bars, liquor stores or casinos, for example) and to restrict ATM use. It can help someone in recovery avoid compulsive and impulsive spending.
6. Avoiding foreign transaction fees
If you travel, you may already know that foreign transaction fees can nibble away at your spending power. A 3 percent fee is typical, but a few prepaid debit cards don’t have a foreign transaction fee at all. So even if you normally use a certain credit card for rewards, you may come out ahead using a prepaid card when you travel.
7. Guarding your good reputation
Some credit cards take a look at where you are spending to get a read on how your personal economy is going (and whether your credit limit is appropriate). Shopping at a thrift store or buying used auto parts? Maybe you don’t want to give your credit card issuer the idea that you can’t afford to buy new.
Have you used a prepaid debit card? What’s attractive and not attractive about using them? Let us know on Facebook.