U.S. consumers loaded more than $64 billion onto general-purpose reloadable prepaid cards in 2012, up from $56.8 billion in 2011, according to the Mercator Advisory Group.
But a Pew Charitable Trusts report released in February titled “Consumers Continue to Load Up on Prepaid Cards” says the cards’ increased use is good for people seeking an alternative to traditional checking accounts or credit accounts.
Pew says more cards are charging monthly prepaid card fees but not charging transaction-based fees, such as point-of-sale or customer service fees.
But while many prepaid cards have become more affordable, no federal laws or regulations exist that protect consumers from hidden fees. Companies that back the cards don’t have to disclose fees, terms, conditions or dispute-resolution practices.
Savvy consumers can avoid, decrease or control many prepaid card fees by being diligent when choosing a prepaid debit card and by using the following tips.
Before selecting a card, examine the terms and conditions. These also may be listed under “what it costs,” “fees” or something similar. Currently prepaid debit cards have no uniformity in their standards for fee disclosure, says Bruce McClary, manager of public policy and government relations for ClearPoint Credit Counseling Solutions in Seattle. If you can’t find the list of fees on the institution’s website or on the card’s packaging in a retail store, ask for a complete list of fee disclosures.
“Since fees don’t come in one single flavor, you should be mindful of how you intend to use the card when reviewing the costs,” McClary says. “Some cards charge fees for reloading your balance, and others may charge a fee each time you check your balance.”
If you see something you don’t understand in the fee section, ask for clarification from the card issuer or a credit expert. The embarrassment of asking a question pales in comparison to the feelings experienced after going broke because of an uninformed financial decision, McClary says.
Choose a prepaid card that offers free use of cash machines to customers, says Benjamin Katz, CEO and co-founder of CARD.com in Santa Monica, Calif.
“Our customers pay no surcharge at the ATM and are billed $3 by CARD.com,” Katz says. “However, if the customer loads $800 in a month onto the card, the first three $3 ATM fees are refunded the same day.”
In a big city, you can usually find an ATM within your network, but in rural areas it may be more challenging. Katz suggests using the card issuer’s phone app or website to find the closest ATM when traveling outside metropolitan areas. You also can use the cash-back feature at grocery stores or other retailers when making a small purchase to avoid ATM fees.
Katz also recommends keeping a $20 bill in your purse or wallet for occasions when an ATM isn’t nearby.
At CARD.com, you avoid the monthly maintenance fee of $5.95 when you load at least $800 onto the card via direct deposit. This needs to be done sometime in the previous 30 days before the date that the maintenance fee would be assessed.
According to Green Dot’s fees-and-limits section on its website, the monthly charge is waived when you make a direct deposit of your paycheck or government benefits on your debit card. A relatively new card, the TD Go Card, a prepaid product designed for teens, also doesn’t levy a fee when loaded by direct deposit.
Although having an automatic deposit scheduled to load onto the card may help avoid prepaid card fees in some cases, McClary says it’s not always a guarantee.
“Check the terms and conditions before making any assumptions,” McClary says. “Arranging for direct deposit does ensure that you’ll keep the card reloaded on a regular schedule.”
ClearPoint’s McClary warns that if you don’t use your card, you can even be charged for that.
Dormancy fees can be triggered as early as 90 days or as late as 12 months from the last activity for lack of use, he says.
According to the Consumer Financial Protection Bureau, or CFPB, you may pay your card’s regular monthly fee whether you use the card or not. In addition to, or instead of, a regular monthly fee, you may be charged a fee if you don’t use your card for a certain period of time.
“To avoid these inactivity fees, be sure you’re using the card frequently and resetting that clock before it runs out,” McClary says. “Check the fee disclosure terms, and you will see exactly how and when this fee is applied.”
Katz says that another kind of inactivity fee may be charged if you don’t load your card every month.
Although not actually a fee, the money on your prepaid card can be tied up when you use it at hotels, gas stations or on rental cars. A specific amount of money, usually more than you’re actually spending, may be “held” for a period of time.
“These are transactions where you need preapproval, and funds are held in reserve because the final bill is uncertain,” says Tami Farrow, senior vice president and head of retail deposit payments at TD Bank.
To avoid a hold at a service station, name the amount that you want to spend on gas instead of just filling up. It could be $40 or some other amount. You may want to use a credit card for hotels and rental cars because the hold amount would be removed before you received your credit card bill, Katz says. A hold may last up to a week until the final bill is resolved.
Farrow says these holds may be unavoidable, but make sure you have enough money loaded on your card or you could be charged a decline fee.
McClary says that you’ll find fees all over the map with these prepaid cards.
“On an annual basis, consumers can expect to pay anywhere from under $20 to nearly $400 in fees,” McClary says. “It all depends on the card selected and on how it’s used.”
When shopping for the best cards, the generic cards linked to trusted banks are likely to be the most stable and cost-effective, he says. Flashy cards branded with celebrity names or other pop culture icons tend to have the steepest fees.
According to McClary, the key to saving the most money is knowing the terms of the card agreement. The better you’re acquainted with the details, the less likely you’ll be blindsided by a variety of fees that can drain your account.