Good-bye checking account, hello prepaid card

By , CardRatings Contributor
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The big banks are tired of you leeching off them.

For years, they have given you free checking in the hopes you would also take out a mortgage, run up your credit card balance or stash away a tidy sum in your savings account. But instead, you've been content to use your checking account and bypass the bank's other offerings. In short, you aren't making them any money.

So the free ride is ending at many banks. Big names such as Wells Fargo, Bank of America and Chase have either enacted fees or restrictions that make their free checking not so free or are said to be planning these changes. According to a Wall Street Journal report, bank customers must now maintain an average minimum checking balance of $723 to avoid fees.

What's more, the average monthly fee on non-interest bearing checking accounts has risen to a record $5.48. Maybe that doesn't sound like a lot, but then you have your rising ATM fees, overdraft fees and even, at some institutions, maybe even debit card usage fees.

Enter the prepaid credit cards

To avoid fees and keep spending in check, recent reports suggest more Americans may be turning to prepaid credit cards and debit cards instead of traditional checking accounts. Prepaid cards offer the opportunity to load a preset amount of money onto a card which can then be used anyplace the sponsoring card issuer -- typically Visa, MasterCard or American Express -- is accepted. (American Express is a advertiser).

A recent study from the Federal Deposit Insurance Corporation found one in four households have used alternative financial services, such as prepaid debit cards and credit cards, in the past year. In addition, 10 percent of households have no checking account, which may indicate some consumers are skipping their local bank and exclusively using a reloadable card to manage their money.

Walmart hopes Bluebird will soar

While the American Bankers Association reports nearly 60 percent of banks offer their customers prepaid cards, the game-changer for 2013 may be the introduction of American Express's Bluebird card.

Launched as a partnership with Walmart, the Bluebird prepaid card is being marketed to the mega-retailer's millions of customers. The hope is to cash in on disgruntled consumers who may be feeling used and abused by fees at the big banks. While Walmart and American Express are keeping hush on the details of how each will profit from Bluebird, it isn't hard to see how the arrangement will be a win-win should the cards take off with the public.

Not all prepaid cards are created equal

Although prepaid card offers such as the Bluebird promise lower fees than checking accounts, consumers still need to shop around for the best deal. The Pew Charitable Trusts studied the issue of using prepaid cards as an alternative to checking accounts and found the cards can come with a mish-mash of confusing fees and fee disclosures.

The 52 general purpose reloadable cards examined in the study had anywhere from 7 to 15 individual fees that could range from 50 cents to $9.95. What's more, fee disclosures for the cards could be confusing at best for some products.

While the federal Consumer Financial Protection Bureau is considering recommendations regarding how to standardize fees and disclosures for prepaid debit cards and credit cards, right now, it is up to consumers to do their homework.

If you are one of the consumers feeling smitten with prepaid cards, be diligent about selecting the right card. Make sure you can conveniently access your money and that you aren't trading your high-fee checking account for a high-fee prepaid card.

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