If you’re looking forward to a tax refund this year, your tax preparer can give you the option of receiving it in the form of a prepaid debit card. While this may seem very convenient, there are a few downsides to consider. This article explores the pros and cons of tax refund prepaid debit cards.
Key points to remember
- Many tax preparation services offer the option of having your tax refund deposited directly to a prepaid debit card.
- This can be an alternative for people who don’t have a bank account, don’t want to wait for a check to come in the mail, or don’t want to use an expensive check cashing service.
- However, these prepaid debit cards can incur numerous fees that will reduce the value of your refund if you’re not careful.
Benefits of Debit Cards with Tax Refund
Tax preparation services like H&R Block, Jackson Hewitt, TaxAct, and TurboTax all make prepaid cards available to their customers. Proponents of the cards point to these benefits:
If you don’t have a bank account. The absence of a bank account excludes receiving your reimbursement by direct deposit in this way. You could still receive it as a check, but you’ll have to cash that check somewhere. Although laws vary from state to state, check cashing stores, such as payday loan companies, often charge about 3% of the face value of the check for this service. So if you get a $3,000 refund, you might walk away with just $2,910. (Note that if you need to cash a check and you don’t have a relationship with a bank, some big box stores, like Walmart, and large grocery chains, like Kroger, cash checks for a much higher fee. low, usually less than $10. )
If you want your refund a little earlier. It’s usually faster to ask the US Treasury Department to deposit your tax refund directly, either to a bank account or prepaid debit card, than to wait for a refund check to arrive in the mail. According to H&R Block, if you file your return electronically, you can usually expect a direct deposit within 21 days, while a check can take 21 to 28 days. If you file a tax return on paper, the wait will be longer due to the time it takes to process paper returns.
If you don’t trust the courier. Checks can get lost in the mail, of course, and that could be a particular problem if you’ve recently moved. Thieves have also been known to break into mailboxes at tax time looking for refund checks.
Disadvantages of debit cards with tax refund
If you don’t have a bank account, receiving your refund on a prepaid debit card can be convenient. However, this convenience comes at a cost, which is the main disadvantage of prepaid debit cards:
Fees can be high. H&R Block’s Emerald Prepaid Mastercard, for example, charges a $3 fee for using the card to get cash from an automated teller machine (ATM) and an inactivity fee of $4.95 per months if you haven’t used your card for 60 days, among other charges. TurboTax’s prepaid Visa Turbo card charges $4.95 per month unless you loaded at least $1,000 in the previous month (the first monthly charge is waived, regardless of the amount); in-network ATM withdrawals are free, but out-of-network ATM withdrawals cost $2.50.
There are some things you can do to minimize your costs. First, check the card agreement to make sure you understand the fee structure. If you have the H&R Block card, for example, you’ll want to make sure you use it at least once every 60 days to avoid monthly fees. With the TurboTax card, if you are unable to load an additional $1,000 each month (such as by direct deposit from your paycheck), you may want to spend your balance in as few months as possible.
An even better alternative may be to open a bank or credit union account, even if you previously thought you didn’t have enough money to qualify. For example, some credit unions, referred to as low-income credit unions (LICUs), have low minimum balance requirements, offer check cashing services, and even make small loans.
How long do tax refunds last?
The Internal Revenue Service (IRS) claims that it issues over 90% of refunds within 21 days. However, if you are filing a paper return, the wait may be longer.
How can I check the status of my tax refund?
The IRS website has a “Where’s my refund?” tool you can use to verify your refund within 24 hours of e-filing or six weeks after submitting a paper return.
How do I know how much money I have on my prepaid card?
You can usually check your balance online or by calling the card’s automated customer service number for free. However, before using an ATM to check your balance, check your Cardholder Agreement to see if any fees apply.
Are prepaid debit cards insured?
Many, but not all, prepaid debit cards are insured by the Federal Deposit Insurance Corp. (FDIC). But this insurance only covers you if the bank holding your funds fails, not if your card is lost or stolen.
Receiving your tax refund via a prepaid debit card can be convenient and a little faster than waiting for a check, and it’s an option for people who don’t have a bank account. However, you may also be subject to numerous fees, which will reduce your refund. If you decide to go this route, be sure to read the card agreement to avoid as many charges as possible.