Prepaid debit cards sound like a great idea. You can’t overspend them, most don’t have the ability to be overdrawn, and they offer an alternative for people who don’t have a bank account. Government benefits such as Social Security or state unemployment insurance can also be paid for by a prepaid debit card. And, they are sometimes given as gifts by people who basically want to give money, although there is a difference between prepaid cards and gift cards.
There are many differences between these cards and debit cards and credit card, including fees that can cost you dearly if you don’t know what to watch out for. Although new protections of the Consumer Financial Protection Bureau (CFPB) which make account fees more transparent came into force in April 2019, it is always important to know the terms of your card in order to avoid losing.
Key points to remember
- Prepaid cards may come with sign-up fees, monthly fees, individual transaction fees, etc.
- In April 2019, new protections from the Consumer Financial Protection Bureau went into effect to make account fees more transparent.
- Prepaid debit cards don’t issue statements – you have to request them or track your spending some other way.
Read the fine print
Card companies don’t have to be bold in how they advertise their fees. And they rarely do. In fact, many companies strategically feature some of their most common fees and other important information in the fine print of the cardholder agreement. This is the section at the bottom of this agreement in small print that is often difficult to read. This section contains a lot of information often overloaded with legal jargon. It sounds fishy, but it’s not illegal.
Because there is so much to skim through, most people skip the fine print and even those who don’t skim through that mountain of information often. You shouldn’t take this information lightly, however, as it can mean the difference between choosing a company that can help you preserve some of your hard-earned money and one that just slashes your account balance.
Fees vary by card company. Some impose a handful of charges, while others seem to have no limit to the costs they charge their customers. Here are some of the most common fees you might expect:
Take the example of the Visa RushCard. Consumers using this card can expect to pay:
- One-time card fee of $3.95 or $9.95
- Monthly fee of $7.95 or $5.95 if you set up direct deposit on the monthly unlimited plan vs. its pay-as-you-go plan
- $1.00 fee for each purchase if you have a pay-as-you-go plan
These are just three of the charges that users might incur.
Monitor your card activity
Prepaid debit cards does not deliver automatically statements like credit and debit cards, so you need to apply for them or find another way to track your spending. Under new CFPB rules, prepaid cards must allow you to monitor your account for free.Some card companies allow you to track your expenses in the same way as traditional banks. This can be done through an online portal or on a mobile application which you can access through your tablet or smartphone. For those who prefer on-the-spot communication, there are card companies that provide updates on charges and balances via text message.
Don’t lose your card
With many prepaid debit cards, it would be easy for someone who found it to use your remaining balance without getting caught. Under the new CFBP rules, your money must be protected in case your card is lost or stolen. However, it is important that you report your card lost or stolen as soon as you discover it so that you can invoke these protections.
There may also be a charge to replace your prepaid debit card if it is lost or stolen.
Get rid of prepaid debit cards
If you find yourself owning a prepaid debit card that you don’t really need, here are some ways to quickly ditch the card:
If your goal is to get rid of the card, you should buy something you know you won’t be coming back to, like groceries. If you use the card to buy something that you later decide to return, enough time may have passed for the card to charge you a monthly fee.
Know how much money is on the card before you start shopping and make sure your total including tax will be less than the balance before you checkout. If you try to buy $51 worth of stuff with a $50 card, your purchase will be declined because there is no discovered with these cards. As an alternative, if you want to spend more than the balance on the card, you can ask the cashier to put $50 on the card and then use another payment method to cover the rest of your purchase.
Buy a regular gift card
With this strategy, you are essentially exchanging a card with unknown terms and fees for a more manageable card. Many grocery stores sell a wide variety of gift cardsso you can easily convert your prepaid card into cash for a store you frequent.
You can also clear the balance by using the card to send yourself an Amazon eGift card. Amazon eGift cards can be purchased in custom quantities, so if you have a prepaid debit card with, say, $2.25 left, that’s a good way to use it.
Withdraw the entire balance in cash
If you can, why not take the balance in cash? Keep in mind, however, that you may incur ATM fees and/or a transaction fees associated with converting your card to cash. But it may be worth it in the long run for you to get rid of the card.
Close the card and request a refund check
It may be possible to close the prepaid debit card Account, even if you’ve never used it to buy anything, and get a check for the balance. However, there may also be a charge for doing so, so read the fine print before choosing this option. It also adds an extra step to get rid of your card, as you will then have to deposit or cash out the Check somewhere.
Prepaid debit cards make sense in some situations, but many people will find them inconvenient and full of expense. The best way to avoid these charges is to educate yourself about them, ditch the card as soon as possible, or avoid prepaid debit cards altogether.