Prepaid cards are the talk of the day in some circles. They are said to have a number of advantages, not the least of which is that they require no credit check! But that alone ought to cause the discriminating mind to raise a few concerns.
Are Prepaid Cards a Good Idea?
Think about your local used car company that advertises instant credit with no credit check. My response to such is to follow my dad's good advice, hang onto your wallet and get away quick. That is an obvious indicator to me that I want to move on to another dealer.
The typical service charge for a prepaid card is $9.95 a month. For what? For the privilege to use your own money. And other charges may apply, as they say. Charges like ATM fees, transaction fees (whatever they are) and a list of other options about as long as your arm!
For a lot of additional information about how these cards work you might check out 5 things to know about prepaid cards on the CNN Money site.
Do Money Advisors Like Prepaid Cards?
Sadly, some of the popular financial gurus have not been as honorable as they could be in this area. It is even rumored (OK, it is more than a rumor) that one of the most popular is actually sponsoring one!
It has a lower finance charge (but still charges a few dollars a month) and claims it helps improve your credit score (generally prepaid cards do not). Besides the fact that you don't need to improve your score unless you want to borrow money—which you usually shouldn't—my understanding is that only some obscure credit rating companies look at it, none of the big three.
If your credit is so bad you cannot even open a bank account and you must have a card for some purpose, I suppose you might consider one of these, but I wouldn't recommend it under any normal circumstance.
Are Prepaid Card Charges Necessary?
We all face doing our taxes for the IRS each year. You may remember coming across a box in the forms somewhere for “bank charges.”
EXAMPLE:
Now I happen to have a good number of bank accounts because I find using multiple accounts a good way to manage money. I am happy to say that I accurately fill the box for bank charges on my IRS returns with a zero!
There are plenty of banks that offer free accounts. Yes there are. And you can have automatic deposits of your income and free debit cards as well. The end result is that you can have the advantage of a prepaid card without the expenses.
Many of the big banks are among those raising debit card fees, but not all of them are doing so. Small local banks are still a good bet for free debit card use, as are credit unions.
Should You Get a Prepaid Card?
For what it is worth, this is my conclusion. Using a card can be a useful tool for many people, but if you do use one, choose a debit card and choose one without a lot of unnecessary fees like those associated with prepaid cards. In short, my recommendation is that if you are thinking about getting a prepaid card, think again.
