Prepaid Cards Gaining Popularity, Despite Fees

Would you pay your bank $5 a month (or more?) just so you can withdraw money you have deposited there?

As absurd as that sounds, a growing number of consumers are doing a very similar thing for the privilege of using a prepaid debit card.

Large banks and the big names in the credit card industry have convinced consumers that paying a fee to deposit money on a piece of plastic that can then be used just like cash, is a good thing.

A new survey by TD Bank shows that consumers, especially millennials, are willing to absorb a laundry-list of fees in return for having a convenient, secure and anonymous source of purchasing power.

“Consumers have told us they are concerned with the safety of their money and personal information,” Tami Farrow, Head of Retail Deposit Payments at TD Bank, said in a press release. “Their habits with prepaid cards demonstrate they feel secure, especially when making day-to-day purchases or shopping online.”

Prepaid debit cards started out as a useful resource for the estimated 80 million “unbanked” Americans, meaning those who are either denied access to a bank account or voluntarily choose not to have one. With no checking account or credit card to back them, they would have to carry a wad of cash everywhere for expenditures.

Instead, they can use a prepaid debit card that would give them a record of all purchases. That is especially useful for online buying where cash is usually refused. Some of the other benefits for prepaid debit cards include:

  • Security for online purchases. No worries about your name, credit card or bank account numbers being hacked because there is no identity associated with the prepaid debit card.
  • Allows employer to direct deposit paychecks to prepaid debit card account.
  • Access to ATM machines to make cash withdrawals, when necessary.
  • Ability to make purchases anonymously.
  • Makes budgeting easier, especially for college students and senior citizens. You can only spend the amount deposited on the card. When you’re out … you’re out!

For many years, however, those benefits were overshadowed by fees for virtually everything you did with the card. You were charged for activation, monthly maintenance, cash withdrawal , bill inquiry, customer service, bill payment and re-loading the account. There was even a charge called “dormancy” for not using the prepaid card enough.

The fee structure varies greatly between cards, but each one usually ranges from $1 to $5. The total monthly fees vary, often depending on the amount deposited on the card, but can reach $15-$20.

Many of those fees have been reduced or eliminated in the past year and it has helped grow the market for prepaid debit cards. The number of card users and the amount spent by them ($37 billion) has doubled in the last five years.

Many of the same names that dominate the credit card field – Visa, American Express, MasterCard – are prominent in the prepaid debit card field, alongside big banks like BB&T, Chase and US Bank.

Unfortunately, it is difficult to compare one card to another because there are no rules governing the industry. Each provider chooses which fees it will include and under what conditions it will waive fees. There also are few consumer protections if the card is lost or stolen.

The Consumer Financial Protection Bureau is looking at enacting regulations that help protect consumers in both of those areas.

Author

Bill Fay
Staff Writer

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

In debt? We can help!

  • Amount
  • Type
  • Contact

How much do you owe?

What can we help you with today?

Related Articles

Bag of Payday Loan Money Exchanging Hands

Payday Loan Alternative a Good (Or Risky) Thing?

If you’re one of the millions of Americans for whom payday can’t come soon enough, technology is catching up with your dreams. Uber, McDonald’s and Outback Steakhouse are among a growing number of employers that are offering workers an on-demand ...

Continue Reading
American families are having trouble with understanding finance

Financial Literacy a Tough Test for Most Americans

The latest trends in spending and debt indicate that America already has forgotten any lessons we might have learned when the bubble burst on the U.S. economy in 2008. The reputable and renowned Pew Charitable Trust says that 80% of American adults are in ...

Continue Reading
Prepaid Reloadable Card Card

GPR Cards An Alternative To Banks, Credit Cards

If you like the convenience of a credit card, but lack discipline and overspend when using one, a general purpose reloadable (GPR) card could be the way to stabilize your finances. GPR cards, more commonly referred to as pre-paid credit cards, are safer ...

Continue Reading
Tips for banking and their new rules

How Credit Unions And Banks Are “Gamifying” Savings

Nobody wants to play games with their investment dollars, but what if the game was rigged so you couldn’t lose? Credit unions in five states have come up with a savings account – remember them? – that includes a chance to win monthly, quarterly and ...

Continue Reading
Man Filing Papers For Bankruptcy

3 Reasons To File For Bankruptcy

There aren’t many words in the English language less understood and more avoided than bankruptcy. “There definitely is a stigma attached to it,” Jeff Badgley said. “When people hear it, they get really uncomfortable.” Badgley sees the ...

Continue Reading
Couple Stressed out over Finances

Most Americans Still Stressed Over Money

If money is causing stress and anxiety in your house, take it easy. You’ve got company. The same thing is happening in the house next door. And the one across the street. And just about every other home in your neighborhood. The American Psychological ...

Continue Reading
Save money while helping the planet

Save Some Money While Saving The Planet

Most people know their financial footprint in the world, but probably couldn’t tell you their carbon footprint on the planet. Earth Day celebrations, which happen every year on April 22, remind us that we are responsible for keeping the planet clean, ...

Continue Reading
Bonus Money

What Would You Do With Millions In Bonus Money?

Imagine for a moment, what would happen if the general manager for your company walked in today and announced that 32 lucky employees would be selected to receive millions of dollars in bonuses. Bedlam, right? Uncontrollable excitement. People so wired ...

Continue Reading
Get Help Now

Overwhelmed with debt? You have options for lower monthly payments!

x