What do Earvin “Magic” Johnson, Suze Orman and the Kardashians have in common?
You guessed it: All once marketed a prepaid debit card.
Unfortunately, many celebrity-endorsed prepaid cards haven’t helped the image of an industry that’s received a bad rap for excessive fees (although some celebrity cards have had higher fees than others).
However, prepaid debit cards do have some built-in benefits, and some cards have extra features that make them a feasible alternative to a traditional checking account. And they’re becoming much more popular. Writes the Consumer Financial Protection Bureau:
For example, the amount of money consumers loaded onto “general purpose reloadable” prepaid cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. The total dollar value loaded onto general purpose reloadable cards is expected to continue to grow to nearly $100 billion through 2014.
Here’s what you need to know if you’re considering getting a prepaid card.
1. Efficient budgeting tool
If you struggle to keep your spending under control, a prepaid debit card may be worth a shot. Reasoning? With most prepaid cards, once the cash is gone, it’s gone, and there’s no way to spend more than you have at your disposal.
In fact, they’re perfect for parents who want to give their children access to spending money without the possibility of exceeding what’s available.
2. No overdraft fees
This feeds off my last point. Have you overdrawn your checking account by a few dollars, only to find yourself slammed with a big fee or even multiple fees? Some banks reorder the charges from largest to smallest, which produces a larger number of overdraft fees.
With most prepaid cards, there’s no danger of overdrawing the account.
You can acquire a prepaid card without providing any personal information. Because your personal identifying information won’t be stored in a database, the chance of your identity being compromised is nonexistent.
However, you will have to provide information if you want to reload the card. Writes Odysseas Papadimitriou, CEO of CardHub:
In order to reload a prepaid card and use it as an alternative checking account, a replacement check cashing tool, or a means of distributing monthly allowances to your kids – the three most common roles that prepaid cards play – you need to “activate” it with the issuer. That, of course, entails providing a certain amount of personal information, including your name, contact information, and Social Security number.
4. Reloading capabilities
Some prepaid debit cards can be reloaded online, so you don’t have to head to the store each time you have exhausted the available balance.