The entrance of mainstream financial institutions transformed the prepaid debit card market. Customers have more options today, and many of the newer cards closely resemble the checking accounts they are replacing.
The big difference is that prepaid cards are more lightly regulated than bank accounts, which is a concern to consumer advocates because the quality and consumer-friendliness of the cards on the market varies widely as a result. It’s still a buyer-beware marketplace, and Bankrate.com breaks down the details in its annual survey of the 24 biggest prepaid cards by market share.
A word about monthly fees: About two-thirds of the cards in Bankrate’s survey charge a monthly fee. Roughly half of those can be waived if you have a paycheck or benefits direct-deposited onto the card, but some of the thresholds are prohibitively high.
For example, to avoid the $3.95 monthly fee charged by the READYdebit Control card, you have to have $1,500 loaded onto the card monthly. It’s the same story with the Moneygram AccountNow card, except the user has to have $2,500 deposited each month to avoid a $9.95 monthly fee. You can knock only $5 off the AchieveCard Visa’s $9.95 monthly fee, not eliminate it completely, and to do that you still have to have $2,000 deposited onto the card each month.
All of these are considerably higher than the direct deposit thresholds Bank of America, Chase, Citibank, and Wells Fargo set to waive the fee for their basic checking accounts.
But you shouldn’t choose a card based solely on its monthly fee or lack thereof. Some cards that tout no monthly fees stick in all sorts of other fees. Meanwhile, some cards that do charge monthly fees offer a lot of other features and services at no cost. The Chase Liquid card, for instance, charges $4.95 a month (waived if you already have a Chase bank account you link to the Liquid) but gives users access to many of the services regular checking account customers get.
Some charges, like fees to use out-of-network ATMs, are pretty common among both prepaid cards and traditional checking accounts. But some card issuers go crazy and attach fees to everything from buying the card to not using it for a few months. Here are the most egregious fees, which you should avoid at all costs.
1. Purchase/activation fee: You’re probably going to pay to use this card, so you shouldn’t pay to acquire the card, too. Of the 24 cards, customers have to purchase 10 of them (a couple are free if you buy them online, as opposed to at a brick-and-mortar retailer).
The Baby Phat and KLS RushCards both cost $14.95 upfront, the highest purchase prices in Bankrate’s survey. Four other RushCard designs have a purchase price of $9.95. The READYdebit card is also $9.95.
2. Point-of-sale fee: This is a fee you have to pay when you use your card to buy something. Yes, you’re literally being charged to use your own money. Some cards that do this only charge for PIN-based or signature transactions; others charge for both, though the price sometimes differs depending on the type of transaction.
On Bankrate’s survey, there were a few offenders: The Silver AchieveCard MasterCard and NetSpend Pay As You Go cards both charge $2 for PIN and $1 for signature purchases. The Americas card charges 49 cents for PIN purchases. The READYdebit Control card charges 95 cents whether you key in a PIN or sign, and the RushCard Pay As You Go card charges a buck a pop, up to $10 a month. RushCard also has a tiered selection of flat monthly service fees ranging from $5.95 to $9.95 in lieu of per-swipe fees.
All these variations might sound confusing, so we’ll keep it simple: Don’t get a prepaid card that charges you to buy stuff.
3. Customer service fee: Even big banks are nudging their customers more towards digital tools — Bank of America just rolled out ATMs with remote tellers available via video-chat — but sometimes you need to talk to a human being. Pick the wrong prepaid card, and that could cost you.
Some cards give you one or two free calls a month — which is probably fine for the most part, but could get expensive if you’re dealing with an unauthorized charge or other administrative headache. The Plastyc UPside Classic and READYdebit Control cards charge $2 per call.
4. Inactivity fee: Some banks charge inactivity or dormancy fees if you don’t use your account for a long time (generally 180 days or more), but seven of the prepaid debit cards in Bankrate’s survey start charging customers for not using their card after as little as 90 days. Several others will close an account with a $0 balance after two or three months of inactivity.
The dormancy fees start at around $2, but some are much higher: The Wells Fargo Stagecoach prepaid card charges users $5 a month after 180 days of inactivity; the Mango Prepaid MasterCard charges $5 a month for two months; the Americas Card Visa Prepaid charges $3 a month after 90 days; the Emerald Card from H&R Block charges $2.50 a month after three inactive months; the NetSpend Pay As You Go charges $5.95 a month — the highest among the cards Bankrate surveyed — after 90 days in all states except New Jersey and Connecticut; the Western Union MoneyWise card charges $2.95 a month after 120 days; and the RushCard Pay As You Go charges $1.95 a month after 90 days.
Better bets: With so many cards — and so many fees — picking the right one can be hard, especially because so many big banks are now offering prepaid cards. To date, American Express, Chase, Fifth Third, PNC, Regions, U.S. Bank, and Wells Fargo all have prepaid cards surveyed by Bankrate.
Getting a bank-issued card isn’t necessarily better when it comes to fees, although most of them do offer access to their own ATM networks. (Wells Fargo is the exception here; Stagecoach card users get one freebie a month, then they have to pay $1.50 to use an ATM whether it’s a Wells Fargo machine or not.)
The Pew Charitable Trusts called out American Express in a recent report for not covering customer deposits with FDIC insurance; the group said the state-level deposit protection AmEx used was inadequate. Last month, the issuer announced that funds in its Walmart-partnered Bluebird cards are now FDIC insured.
The Bluebird, PNC’s SmartAccess, and Chase’s Liquid cards are examples of prepaid cards that don’t hit you over the head with either the number or amounts of fees they charge.
Even so, we still think conventional checking accounts are better for most people, and there are still free checking accounts out there, although they’re easier to find at smaller banks or credit unions. But for people who can’t or don’t want to have a checking account, the rapid growth of the pre-paid market has led to some more customer-friendly options.