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Prepaid cards

Prepaid card buying guide

Last updated: December 2014
Getting started

Getting started

Prepaid cards, more formally known as "general purpose reloadable cards," have rapidly gained a place in Americans' wallets. They look and work just like bank debit cards--but without the bank and without the important federal consumer protections that cover regular debit cards linked to a checking account if your card is lost, stolen, or used for unauthorized transactions, or if the financial institution behind it fails.

Prepaid cards are growing in popularity. From next to nothing only a few years earlier, prepaid cards were used in seven percent of the 123 billion non-cash payment transactions executed in 2012, the latest year for which data are available. By contrast, traditional debit cards dominate the various ways consumers can pay for purchases without cash and were involved in 38 percent of non-cash payments, while credit cards were used for 21 percent.

Key factors to consider

Like a debit card, a prepaid card can generally be used to make purchases in stores and online, receive direct deposits, pay bills online, and obtain cash at an ATM. But prepaid cards are much simpler than opening a bank account; you simply buy them in a store or online.

And there's good news for prepaid cards users: Competition and regulatory scrutiny have driven down fees, and the Consumer Financial Protection Bureau is expected to issue preliminary rules covering prepaid cards in late 2014.

Although all but one of almost two dozen prepaid cards we've examined voluntarily provide customers with deposit insurance and protections that mirror those afforded to debit card holders under the Electronic Fund Transfer Act, these voluntary protections can be withdrawn or changed anytime and they're no substitute for strong federal regulations. Consumers Union, the advocacy arm of Consumer Reports, has long advocated that all payment cards--credit, debit, and prepaid cards--should come with the same mandatory protections.

Unfortunately, there's some bad news, too: The terms and conditions that govern the fees and your rights and responsibilities in using these cards can differ dramatically among providers, and fees and charges are sometimes hard to find in the small print if they are there at all.

One obstacle to easy comparison shopping is the lack of standard terms to describe common fees. For example, take the fees associated with opening an account: On the landing page for the Chase Liquid prepaid card, the site advertises "$0 Fee to Open" while the RushCard has a "Get Started OneTime Card Fee" of $3.95 -$9.95" and the U.S. Bank Contour Card charges a $4.00 "Enrollment Fee."

Another problem: Consumers may find it difficult to quantify monthly fees because not all the fees that they may incur in using a prepaid card are charged by the prepaid card program manager. Reloading fees are an example. Most prepaid cards can be reloaded (meaning value is added to a prepaid card) in a variety of ways, and few prepaid card issuers themselves charge cardholders a fee to load.

However, third-party reload fees charged by retailers, for example, are very common. This leaves consumers without essential information, making it difficult to calculate what it will cost to use a prepaid card before they buy one.

Among the fees to compare if you're considering a prepaid card:

  • Activation or initiation fees
  • Monthly fees
  • Point-of-sale transaction fees
  • Cash-withdrawal fees
  • Balance-inquiry fees
  • Fees to receive a paper statement
  • Fees to call customer service
  • Bill-payment fees
  • Fees to add, or "load," funds
  • Dormancy fees for not using your card
  • Fees to get your remaining funds back when closing the account
  • Overdraft, or "shortage," fees

How we rated prepaid cards

To take some of the work out of this chore, we scrutinized the details and rated almost two dozen prepaid cards in two different ways, based on two ways consumers use them:

If you use a prepaid card in addition to a traditional bank account...

The top prepaid cards rated for use in addition to a bank account all have relatively low monthly fees and few other fees. As the ratings table shows, Bluebird comes out on top, followed by H&R Block Emerald Prepaid MasterCard, Chase Liquid, American Express, and Fifth Third Bank Access 360° (MasterCard)

If you use a prepaid card in addition to a traditional bank account...

Consumers looking to sidestep traditional banking have some good prepaid card choices. Bluebird again tops the list, with all the features a consumer could want, including bill pay, no monthly fee, no inactivity fees and no fees for calling customer service. Bluebird is versatile; features include nooverdraft paper checks. Chase Liquid is another low-fee, high-feature account, though it does not have bill pay, Chase Liquid card is Visa branded, and thus consumers may find it more widely accepted than the Bluebird and its sibling card Serve, which both are American Express. Prepaid Visa RushCard, RushUnlimited Plan solves both problems, with a Visa brand, and bill pay that allows consumers to have a paper check sent to a payee from a RushCard account. Rounding out the top five is Green Dot Prepaid Visa, a top performer in 2013 which continues to be an excellent choice for consumers.

Bottom line

The best prepaid cards are convenient, affordable tools for financial management, whether those cards are used in conjunction with a traditional bank account or instead of one. However, consumers may find it difficult to pick the best prepaid cards because comparison shopping is hobbled by the lack of uniform fee terms and disclosures. Prepaid users deserve the same high level protections that come with credit and debit cards, and regulators should move to implement such protections.

   

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