One of the major perks of a checking account is the convenience and protection of a debit card. But with an estimated 17 million Americans lacking access to a bank account of any kind, this is a convenience that not everyone can enjoy. Prepaid debit cards are one alternative, but like many financial services, they come with both pros and cons.
Benefits of prepaid debit cards
Prepaid debit cards give the unbanked access to services that they would normally have to forego, including paycheck direct deposit, online purchases, online bill payment and reward options that can generate cash back perks.
But prepaid cards aren’t just for the unbanked. Some people use them to maintain a strict budget, or to teach their children responsible spending habits. In most cases, once you spend your allotted balance you cannot spend any more. To avoid possible overdraft fees, be sure to read the fine print of your card before making this assumption.
Drawbacks of prepaid debit cards
Be sure to take note of the risks before you run out and grab a prepaid debit card. Not all services provide bank-level protection for lost or stolen cards, and as recent news illustrates, prepaid cards are especially vulnerable to hacks.
The main drawback, though, lies in the fee system attached to prepaid cards. Depending on the card you have, you can be hit with fees for taking any number of actions including initial signup, depositing money, checking the card’s balance, overdrafting, monthly maintenance fees, chargebacks, cancellation fees and even making a regular purchase.
How to choose the right prepaid card for your needs
1. Determine your prepaid needs
First and foremost, sit down and figure out how you plan to use this card. Will you use it multiple times a day for purchases? Do you need a way to pay your bills online? How much money do you need to deposit? Will your balance sit on the card for an extended period of time? It’s important to know your card priorities in order to understand how fees will affect you.
2. Read the fine print
The most important step you can take before settling on a prepaid debit card is to read the fine print. If you buy the card in person, you can often find information on the card’s packaging. You can also go online for more information – head to the card’s website and look for a section called “cardholder agreement,” “fee guide,” or something of that nature. It’s vital to keep your own needs in mind when analyzing these fees. For example, high ATM fees won’t be an issue if you don’t plan to use the card for that purpose.
3. Protect your card
Some prepaid cards offer protection programs, but the best thing you can do is to treat your card just like cash. In other words, safeguard it and don’t lose it!
Prepaid debit cards are a viable option for some, but bank accounts offer additional financial perks. Wondering how you could benefit? Check out our blog post, “5 Reasons Why You Need A Checking Account.”