Prepaid credit cards: a good idea?
By Maya Saibil • Bankrate.com

With instant approval, no application process, no credit check and no bank account required, you can start spending with your shiny new Nextwave Titanium Plus Prepaid MasterCard before you can say, "Nothing is free."

The Titanium is the latest in prepaid credit cards, offered through payday loan company Money Mart. Such cards, a hybrid of regular credit cards and debit cards, may be attractive to consumers who have trouble getting traditional credit but can be expensive because of their fees. Is a prepaid credit card right for you? Read on to find out.

What is a prepaid card?
Basically, it's a card you can load money on and use anywhere a credit card is accepted, including online. All you need to get a Titanium MasterCard is a valid address and two pieces of identification. You can have $2,500 on the card at one time and the most you can load at a time is $1,500. The minimum load is $10. You can also use it to withdraw money from your card at many bank machines.

Some of the benefits are similar to regular credit cards, such as cash-back rewards on purchases and zero-liability fraud protection. And because you spend what you load on the card, you don't have to worry about paying interest on your purchases.

But you do have to worry about fees.

What kind of fees?
Getting the card will cost you $20 plus tax. Then you have to dish out $7.50 per month for maintenance charges. It costs $2 every time you want to add more money, another $2 any time you want to withdraw money from it at a Money Mart branch and $1.50 for an ATM withdrawal.

It costs $5 for an international ATM withdrawal and 50 cents if you request your card balance at an ATM. Speaking to a customer service representative will cost you $1.50, and you'll be charged 50 cents for each point-of-sale transaction.

If you want a hard copy of your monthly statement, that will dig a $5 hole into your latte fund, but you can always review your transactions and account balance online or over the phone for no charge. And you should keep track of how much you have on the card, because there is a $5 cost for overdrafting.

If you think a mistake was made either by a merchant or an ATM, then Money Mart will be pleased to look into it for you. But, you better be sure you're right, because being wrong will put you out $10. And if you lose your card, Money Mart will charge you $10 plus tax for a replacement.

"There will be lots of little charges, which will add up," says Andrew Inniss, general manager of Solutions Credit Counselling Service in Surrey, B.C. "And people don't really add those up as money spent; it's just a charge, and they don't think about it."

All good things come to an end, so when your Titanium MasterCard expires, be prepared to pay a whopping $10 processing fee to get a refund for any unused money.

How it sizes up
Physically, the Titanium MasterCard the exact same size as a regular credit card. But that's one of the only things it has in common with regular credit cards. The other main similarity is that you can use it in the same situations as you would a credit card. Inniss says prepaid cards may seem like they are less dangerous than credit cards, because the money is already spent. "You've put money onto this, so it's pretty easy to be cavalier about spending it." But the danger of overspending still exists if you keep loading money on to it.

Being a Titanium MasterCard holder may end up costing more or less than a credit card, depending on your spending. But there are many credit cards out there with no service fees, so if you can get approved for one of those and only spend money you know you have, then a credit card is likely the smarter way to go. A Money Mart representative was not available for comment by press time.

Like MasterCard, Visa offers prepaid cards as well, which function similarly. Mei Ankrett, of Visa Canada, explains one of the reasons why someone might opt for a prepaid card over a credit card: "Some consumers like the fact that prepaid cards also help them control their spending, as there is a finite amount on the card."

Be wary of debt
We live in a society where it can be difficult to get by without a credit card, so Inniss says having a prepaid card may be advantageous to people having trouble getting a regular card. "And there are a lot of people in that boat," he says. "But, by and large, the people who are in that boat need to be careful. A certain percentage of consumers will be mistaken into believing that it's benefiting them. There will be some benefits, but I wonder whether those benefits will be great enough to outweigh the negative," such as the high fees, he says.

For people who are prone to debt, it seems like this card would be more beneficial than a credit card because the money is loaded upfront onto the card, but Inniss thinks otherwise.

"People will find a way to load up the card," he says.

Maya Saibil is a writer in Toronto.