To hear prepaid card providers tell it, the case is open-and-shut. NetSpend calls its card "a lower-cost alternative to banks." RushCard touts its prepaid debit card as "the better alternative to traditional banking."
But are prepaid cards really cheaper than checking accounts? To find out, Bankrate surveyed 18 prepaid debit cards for information on their typical fees.
Even the best of the prepaid debit cards couldn't keep up with credit unions, local banks and online banks, many of which still offer attractively priced checking accounts, says Greg McBride, CFA, senior financial analyst for Bankrate.com.
"While there was variation in the fees charged, with some cards charging more fees or higher fees, all of the cards charged fees of some kind," McBride says. "For the majority of consumers, a low-cost or free checking account remains the better option."
A la carte versus all-you-can-eat buffet
It's true that more banks are charging monthly fees for checking these days. In last year's Bankrate Checking Survey, Bankrate found 45 percent of noninterest checking accounts were considered free, down from 65 percent in 2010.
But if you're looking to prepaid debit cards to bring down your monthly costs, you may be disappointed. To start with, two-thirds of the 18 cards in the survey had monthly maintenance fees.
But the pricing differences don't end there. Unlike traditional checking accounts, which offer financial services such as free access to the bank's ATM network, free customer service and free bill pay bundled together in an "all-you-can-eat" buffet of services, prepaid debit cards charge for a set of specific transactions each time you make them.
So while it's a drag that many banks are charging an average monthly maintenance fee of $4.37, that's not even half the average $9.28 per month you'll spend to conduct a typical month's worth of personal transactions with a prepaid debit card, McBride says. The latter transactions might include 10 purchases, one out-of-network ATM withdrawal, four bill payments, one customer service call and a balance inquiry at the ATM.
And that doesn't include check-cashing fees and the cost of loading cash onto a prepaid debit card, which usually involves buying a Green Dot MoneyPak or some other similar transactional service, says Jean Ann Fox, director of financial services for the Consumer Federation of America in Washington, D.C.
"You and I take it for granted that we can waltz by the ATM and deposit, and go into the bank and make a deposit to our account. We don't pay for that," she says. "If you are paying $4.95 to load $100 to your prepaid card, that is a pretty good bite out of the money you hoped to be able to spend (on) groceries."
If you do go with prepaid debit, Fox recommends setting up a direct deposit to avoid such costs.