Using Debit Cards

Prepaid debit cards (sometimes called stored value cards) are reloadable MasterCard and Visa cards. You load them up with money first and then you spend it. That’s the opposite of credit cards where you spend first and pay for it later. The obvious benefit to prepaid cards is that it’s pretty darn difficult to spend more than you have, so you’re much more likely to control your spending instead of having your spending control you. But there are other benefits as well.

One, not-so-obvious benefit is that the prepaid card companies treat their customers better than credit card companies do. They make their money based on simple service fees while credit card companies make their money on much more complicated fee models that are difficult to understand and that change whenever the credit card companies want them to.

 In the end, there are a lot of benefits and reasons that make prepaid debit cards great financial tools, but in this post I want to talk about how you go about comparing prepaid debit card benefits and features so you know you’re getting a good deal.

Here are the most important things to consider when you’re comparing prepaid debit cards and prepaid debit card companies.

• Are you guaranteed approval (i.e. is the card issued without a credit check)
• How much do they charge to activate the card
• How much do they charge for a weekly or monthly maintenance fee
• How much do they charge to reload (add money to) the card
• How many different places can you use to reload the card
• Can you use the card to make online (Internet) purchases
• Can you use the card to make ATM withdrawals
• Is 24-hour customer service available

Let’s look at them individually a little more closely.

Guaranteed Approval

Maybe the best benefit of having a prepaid Visa or MasterCard is that you don’t need credit to get one. There are a lot of people out there that don’t have a high enough credit score to get a normal credit card but they would like to be able to pay for things conveniently without having to always use cash.  Most prepaid card companies don’t do credit checks and I would avoid a company that did

Activation Fees

Prepaid debit card companies exist to make a profit, just like any other company. One of the primary ways they make their money is by charging you a fee when you buy and activate the card. This is a one-time-only charge and is usually in the $20.00 and under range. There’s a lot of pressure on these companies to drive this fee down too so I would expect most fees to fall under the $10.00 mark sooner than later. In any event, I would avoid a company if they charged more than $20.00 and look for one that charged closer to $10.00.

Maintenance Fees

Another profit component for the card company is the weekly or monthly fee they charge you to keep your account active. Again, this is usually a small amount and it’s always the same (unlike credit cards that have monthly finance charges that can change for several different reasons each month). These fees are usually in the $5.00 to $10.00 range. I would avoid a company if they charged $10.00 or more.

Reloading Fees

Every time you add money to your prepaid card, you’ll be charged a fee. But this fee won’t change over time and it won’t change based on how much money you load. It’s usually a small amount and will be in the $5.00 to $10.00 range. I would avoid a company that charged more than $10.00 and look for one that charged something close to $5.00.

Reload Locations

To add money to your card, you’ll need to use cash. Most prepaid card companies have agreements with retail stores so you can go into the store and load up your card at their cash register. Sometimes you have to buy a “load pack” or some other load product and take it to the register but the process is pretty simple. Different cards have different retail partners and some have large networks of partners while others have very small networks. It’s important to find a company that has partners that are convenient for you. I would avoid a company if they didn’t have a retail partner close to either my home or business (or both).

Online Purchases

One of the primary reasons to have plastic at all is so you can make purchases online. It’s rare to find any company that sells a debit card that doesn’t have this ability. I would avoid a company if they didn’t offer this benefit.

ATM Withdrawals

Sometimes you just need to get cash back from your card and that’s where ATMs come in. Most prepaid Visa cards or prepaid MasterCards will allow you ATM access – for a fee. The amounts can go up to $5.00 but are usually in the $1.95 to $3.00 range. I would avoid a company if they charged more than $3.00.

Customer Service

Customer service is a sticky point with me. It’s hard to find any company in any industry that has great customer service. In fact most companies try to rely on “telephone trees” and online FAQs to either answer or weed out questions. In the end, it’s just difficult to reach a person who either has the knowledge or power to help you if your problem is more than routine. Prepaid debit card companies are no different. Still, some offer less customer service hours than others so I would avoid a company if they didn’t have at least some sort of 24-hour coverage.

Wrapping Up

The prepaid debit card industry is growing and it’s growing at a fast clip. That means each company is competing fiercely to get your business. They’re all searching for benefits and features they can offer to get an edge on their competition. And that’s really good news for us as consumers. When you decide to buy a prepaid product, use this list to help you choose the card that’s the best for you.

Trackback URI | Comments RSS