A prepaid debit card is a prepaid debit card, right? I mean, they all look pretty much the same and can be used the same places, right? Well, not exactly... They are definitely very close in appearance and usage, but understanding their important features and fees and how they differ is the key to deciding which prepaid card, if any, to choose.
She spoke with the sort of energetic enthusiasm of someone who had just discovered gold, platinum or a shipwrecked pirate ship loaded with goodies off the coast. In a casual coffee-break chat, a co-worker told me she uses prepaid debit cards to help manage their family's spending. Where it really got interesting was learning that by using prepaid cards as a budgeting tool, she and her husband were able to save nearly $2,000 in only two months!
The good news is that you too can use prepaid cards to your financial advantage, whether you have good credit or not (you can't build credit with a prepaid card, but can build credit with a secured credit card).
How Prepaid Debit Cards Work
Boiling it down to the most basic terms, here's how most cards work. Users deposit money on their card account. You may hear people speak of funding their card - or "loading", which is the most common term in the prepaid card world for depositing money via a direct deposit, wire transfer, PayPal or a variety of other means. And once the card is loaded, it works basically the same as a credit card or debit card. Cardholders can shop at any retailer or restaurant that accepts their card brand, go online to shop, or get cash through the checkout line or via ATM withdrawals.
So what is the main difference, you may ask, between prepaid cards and a standard debit card linked to a checking account? The key difference is that generally the users of prepaid cards cannot spend more money than what is loaded on the card. This means no NSF or non-sufficient funds fees. NSF fees are the bane of the checking world and can range from $30-$100! For families or individuals attempting to run cash cash-only households, prepaid debit cards are helpful for staying on budget and avoiding debt.
So... How Do You Choose the Best Prepaid Debit Card?
Well, here is the bottom line: find the card that fits your needs and costs you the least to operate. In order to find the best card while saving your hard earned money, take a look at the following terms when selecting the best prepaid debit card for you.
Average Monthly Usage Charges: When you take into effect your usage and any recurring monthly fees, you can be looking at an average cost from below $5 to up to $25 per month, so it pays to do your research.
Fees on Purchases and Cash Withdrawals: Look at the fee structure and how you will use your card for purchases and cash withdrawals. We summarize this information on our best prepaid debit cards listing pages. On the individual card review pages, we break this down into even more detail for you, which can save you a lot of time.
You can also find this information on your own by doing a little bit of digging on the card issuer's website and looking at their cardholder agreement or a fees breakout page. Some websites make it really easy to find the fees and others, well, not so much. KnowYourCard.org has good related info. as well.
Cash Loading Fees: Look at how you will load your card. Things to consider are what are the local nearby resources or locations where you can easily and/or cheaply load your card. This can include banks, credit unions, and retail stores that offer card loading opportunities.
Primary Purchases: Look at how and where you will make purchases on your card. Most places take Visa and MasterCard and a lot of places, but not all, take American Express, for example. You can do a quick inventory on where you shop or like to hang out and next time you are there, make a mental note of what cards they take. If everywhere you go accepts American Express cards, there are some great cards from AmEx that offer really low fees, such as the BlueBird card. If most places you frequent only accept Visa and MasterCard, an AmEx-branded card will not be as convenient. You may feel it is worth it to pay a little more in fees for more convenient usage.
Cash Withdrawals: Look at how and where you will get cash off your card. These days, if you live near a store such as Wal-Mart or a grocery store, you can conveniently purchase your groceries and get a cash withdrawal at the checkout counter where they have the Point-of-Sale device (POS). You enter what amount you want, enter your PIN and voila, the nice person behind the counter or automated checkout service delivers your newly acquired cash directly to you. Withdrawals at ATMs can be free if done at certain ATMs (the bank that owns the ATM may still charge)- check your card for a list of approved ATMs.
Add it All Up - Average Monthly and Annual Usage Charges
Total it up and see what fees you are looking at on a monthly as well as an annual basis. I know, I know. I am asking you to do a bit of math, but it won't hurt for long! :) And if done well and done correctly, you could save yourself quite a bit of money.
After you have done this exercise of looking at where you shop, plan to deposit money, get cash, etc., you can see how the various cards stack up for those typical fees. The one that offers the best savings on fees and most convenience (or offers the best middle-ground for you), is your winner. Happy card shopping!
This article was originally published under the title "How to Choose a Prepaid Card" on Debt Collection Answers.com.
Written by Shane Tripcony, personal finance blogger and web marketing consultant, and Curtis Arnold, a nationally recognized consumer advocate and founder of CardRatings.com, the pioneering website that started posting the first credit card ratings. They are the founders of BestPrepaidDebitCards.com, which provides ratings and reviews of prepaid cards and secured credit cards.
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