{"id":352210,"date":"2014-08-27T06:00:22","date_gmt":"2014-08-27T12:00:22","guid":{"rendered":"https:\/\/www.creditrepair.com\/blog\/?p=352210"},"modified":"2022-04-21T10:17:04","modified_gmt":"2022-04-21T16:17:04","slug":"prepaid-cards-fair-or-foul","status":"publish","type":"post","link":"https:\/\/www.creditrepair.com\/blog\/uncategorized\/prepaid-cards-fair-or-foul\/","title":{"rendered":"Prepaid Cards \u2013 Fair or Foul?"},"content":{"rendered":"\n
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Cash is becoming the less popular choice when it comes to payment.\u00a0 In 2012, 66% of non-cash retail transactions were made with a credit or debit card.\u00a0 In the past, in order to acquire a debit card, you had to have a traditional checking or savings bank account.\u00a0 More recently, prepaid debit cards have made the option of payment by plastic possible for those who could not qualify for a credit card or who could not or would not bank with traditional financial institutions.\u00a0 As we\u2019ll see, there are significant downsides to going the unbanked route, but are there any cases where prepaid credit cards are a good idea?<\/p>\n

There are certainly many choices in the American marketplace, and prepaid debit cards are rapidly becoming widespread.\u00a0 According to the December 2013 Federal Reserve Payments Study<\/a>, payments from prepaid cards reached a total of 9.2 billion transactions in 2012. Prepaid cards made up 7% of all noncash payments in 2012.<\/p>\n

If you\u2019ve had problems with traditional banks, such as excessive unpaid overdrafts, you may get a negative entry in Chexsystems, a credit bureau storing information about checking and savings transactions.\u00a0 An entry in Chexsystems or any number of other similar databanks will render you unable to open a checking or savings account and receive the associated debit card.<\/p>\n

Even if your name is not in Chexsystems, you may still get turned away from a bank due to bad credit.\u00a0 Not all banks pull your credit report during a checking account application, but if they do, you can be denied if you don\u2019t meet their guidelines.<\/p>\n

If you are unable to qualify for a credit card, you may find yourself researching secured credit cards, which allow people with bad credit to get a credit card. After doing a little digging, you may decide not to go the secured card route as they can have some hefty interest and fees. Interest rates on secured cards run as high as 32% and a typical annual fee is about $29.\u00a0 In addition, secured cards require you to pony up cash for a saving account, money you will not have access to for the life of your secured card.<\/p>\n

What if you can qualify for a traditional debit or credit card, but you just don\u2019t believe in banks, or prefer the anonymity of prepaid cards?\u00a0 It\u2019s your choice, but it\u2019s almost always more advantageous to use a traditional debit or credit card than a prepaid card.<\/p>\n

However, prepaid cards aren\u2019t all bad.\u00a0 There are some advantages to using one:<\/p>\n

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  1. Credit checks in traditional credit bureau and Chexsystems are not run.\u00a0 All you need \u201cto qualify\u201d are funds to deposit.<\/li>\n
  2. You can \u201cdirect deposit\u201d your paychecks, if your employer offers this benefit.\u00a0 As a matter of fact, your prepaid card fees may be reduced if you do.<\/li>\n
  3. You can use a prepaid card almost anywhere credit and debit cards are accepted \u2014 with certain car rental companies notably excluded.<\/li>\n
  4. Some prepaid card programs offer online bill pay services.<\/li>\n
  5. Since you can never charge more than your available balance, you will usually avoid paying insufficient fund or overdraft fees.\u00a0 Beware: you can\u2019t spend or withdraw more than your balance, but you can get a negative balance because of the fee schedule.<\/li>\n
  6. You have access to funds at most ATM machines.<\/li>\n
  7. Some people claim that prepaid cards help them to stay out of debt, since they can\u2019t spend more money than they have available on the cards.<\/li>\n<\/ol>\n

    Let\u2019s consider the disadvantages. The biggest one is the expense of the cards from fees.<\/p>\n

    There are many prepaid cards on the market, each one with different fee schedules.\u00a0 Some of the fees for prepaid cards include activation fees, monthly fees, point-of-sale (\u201cPOS\u201d) transaction fees, cash withdrawal fees, balance inquiry fees, fees to receive a paper statement or for telephone customer service, bill payment fees, inactivity fees, and overdraft or “shortage” fees.<\/p>\n

    Bankcorp Bank was the biggest issuer of prepaid debit cards in the US for 2012, according to a June 2013 Nielson Report. To give you an idea of what fees look like, we will use the Bankcorp Bank AchieveCard\u2019s published fee schedule (current as of May 10, 2014).<\/p>\n

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    *PIN transactions are those run as a debit card and require your Personal Identification Number.<\/p>\n

    **Signature transactions do not require the entry of a PIN and are run as a credit transaction.<\/p>\n

    Prior to January 2013, AchieveCard even charged for paying their bill, but has since stopped the practice.\u00a0 In May 2013, they were ordered by the FDIC<\/a> to pay restitution to any customer who paid a fee for any form of bill paying using the AchieveCard program. As you can imagine, no-fee bill payment is now standard in the industry.<\/p>\n

    AchieveCard also does not charge for customer service, direct deposit, automated phone system inquiries, live customer support, online account statements or SMS alerts, but these fees are not unknown in the industry.\u00a0 It\u2019s important to do your homework and make sure the card you select does not charge you for these services.<\/p>\n

    For comparison, we\u2019ll look at what a traditional debit card will cost you. \u00a0J.P. Morgan Chase is the largest bank in the US.\u00a0 Here are the Chase Total Checking\u00ae (which comes with a debit card) fees:<\/p>\n

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    There are ways around fees charged by prepaid card programs:<\/p>\n