American Express' foray into the prepaid debit card market looks more like a traditional checking account than ever, thanks to a new round of product enhancements announced this month. Bluebird, the debit card AmEx launched in partnership with big box retailer Walmart last fall, now offers FDIC insurance for deposits of up to $100,000. According to company officials, the coverage represents just one of the changes that American Express made to help serve unbanked and underbanked consumers.

Bluebird accounts now link to protected bank deposits

American Express gained government protection for its debit card customers by linking Bluebird accounts to "custodial accounts" at Wells Fargo Bank and at AmEx's own Centurion Bank. Although deposited funds take about a business day to get transferred into a protected custodial account, the FDIC will cover each account holder for up to $250,000 in deposits at a failed institution.

The coverage means that Bluebird now qualifies as an eligible account to receive direct deposit funds from government sources, such as military payroll disbursements, Social Security benefits, unemployment benefits, or state assistance programs. With no monthly fees and no service charges for depositing or requesting cash at a Walmart checkout counter, Bluebird offers an attractive alternative for Americans who either can't qualify for traditional free checking accounts or prefer the convenience of managing money at retail locations instead of bank branches.

Checking account features for unbanked

Other updates to Bluebird's platform include preauthorized check writing privileges, powered by the debit card's smartphone applications. To prevent Bluebird checks from bouncing, accountholders must preauthorize checks online and write the appropriate authorization code on their checks. American Express removes the requested cash from an account holder's balance, storing it in escrow until the check clears. Account holders can request a free starter checkbook until May 21, 2013. After that, a book of 50 Bluebird checks will cost under $30.

Bluebird account holders can also deposit their own checks online or by mail. In a statement to reporters, American Express spokesman Daniel Eckert cited the company's prepaid card upgrades as a win for consumers. "The enhancements we're announcing today make Bluebird a great option for our active duty military personnel, government employees and other customers helping them take greater control of their everyday finances," Eckert said. Rival issuer Green Dot launched its own FDIC-insured debit card in January under the GoBank banner, but company language suggests that the service could charge monthly fees of up to $9 in the future.