Prepaid cards have really exploded onto the retail scene over the past few years. For some consumers, they represent a better value proposition than traditional checking account. However, some prepaid cards carry severe hidden fees and penalties.
Prepaid cards serve two important purposes for most of the consumers who use them. First, they enable shoppers without credit cards access to online shopping and other services that require a debit or credit card. If you've tried to rent a car or make an airline reservation without a credit card number, you'll understand why prepaid cards appeal to folks who ordinarily like to use cash.
Second, prepaid cards replace checking accounts for consumers who can't or don't use traditional banks. In neighborhoods lacking bank branches, retail stores offer check cashing services. Direct deposit-compatible prepaid debit cards can significantly reduce the cost of cashing payroll checks.
Based on those criteria, I suggest you check out these three prepaid debit cards:
- American Express Prepaid Card. Call it the "anti-Kardashian Kard." Not long after the reality show family pulled its fee-heavy prepaid card from the market, American Express launched a new series of cards with almost no fees. You won't pay any annual or monthly fees with this card, and you'll even get the first ATM transaction of each month at no charge. American Express even includes its legendary Purchase Protection, making this a great prepaid card for online shopping. However, you'll need a bank account or a retail MoneyPak to load your AmEx prepaid card.
- Green Dot. One of the best-known prepaid debit cards offers a fee-free option if you plan to use it instead of a regular checking account. Direct deposit $1,000 or more per month, and you'll avoid paying any service fees or transaction charges.
- UPside. A relatively new entrant to the prepaid card pack, the UPside Visa Prepaid Card offers a check writing feature with discounted fees if your direct deposit totals more than $500 per month.
While you can use debit cards to improve your financial security and to get better at cash management, you can't use them to improve your credit score. If you've struggled to build or repair your credit profile, consider saving up a few hundred dollars for a secured credit card. Fees often cost less than those for debit cards, while your responsible account use will get reported to credit bureaus.
Related article: 4 trends to watch for prepaid cards in 2012