As more consumers consider alternatives to traditional checking accounts, prepaid debit cards have been soaring in popularity.
Data from The Pew Charitable Trusts, a Washington D.C.-based public policy advocacy group, show that prepaid cardholders are putting more money on their cards each year, loading more than $64 billion on those pieces of plastic in 2012, more than double the amount in 2009. With more cards coming on the market, that trend is likely to continue.
The bad news? Cardholders may not get to spend all their money. Instead, many of them must hand over some of their funds as a result of a wide range of fees. If you are thinking of using a prepaid card for your spending needs, it’s important to remember that all prepaid cards are not created equal, says Greg McBride, CFA, chief financial analyst for Bankrate.com.
“You have to shop around,” McBride says. “There is tremendous variation in what fees are charged among prepaid cards.”
However, consumers are failing to do the research. A 2014 Pew survey revealed that only 32 percent of consumers compare terms before choosing a prepaid card.
It’s easy to avoid some of those add-on costs. Here are three prepaid fees you should never pay.
With some prepaid cards, the first purchase may cost a bit more than you expect. Bankrate’s 2014 Prepaid Debit Card Survey shows that 53 percent of cards charge an activation fee that ranges from $2.95 to $9.95.
“There is a lot of variation at retail locations,” McBride says. “The activation charge can cost more, depending on where you purchase the card.”
Even if you find a card you like that carries an activation fee, shopping online may be able to eliminate it.
“An activation fee is very easy to avoid,” McBride says. “In some cases, the activation fee can be avoided if you purchase the card online.”
Not using your prepaid card may seem like a good way to save money, but it could wind up costing you. Some prepaid cards charge inactivity fees for failing to use the card within a certain period of time.
Susan Weinstock, director of Pew’s Safe Checking in the Electronic Age project, says prepaid cards typically charge an inactivity fee if the card goes unused for a period of 90 days. However, Weinstock says that some prepaid cards charge penalty fees for a period as short as 45 days.
“Let’s say you’re planning to be out of the country,” Weinstock says. “You may not use your card for a few months. Those inactivity fees could kick in very quickly.”
Still, McBride says the majority of cards do not charge inactivity fees, and even if yours does, you can plan ahead to avoid ever letting it kick in.
“If you’re going to take the route of a prepaid card, have a plan for how it’s going to be used,” McBride says. “Don’t just let it sit there.”
Remember the adage, “The customer is always right”? Well, with a select number of prepaid cards, the saying could be updated to read, “The customer should always pay.”
“Customer service charges aren’t popping up on most of the recent prepaid cards coming to the market, but they’re still out there,” McBride says.
Bankrate’s data show that calling customer service can cost anywhere from 50 cents for checking your balance to $4.95 to transfer funds between accounts. While those fees may not seem large, Weinstock says they can still be surprising for cardholders.
“When you have a checking account at a bank, you’re able to walk into a branch and talk to a teller or call a customer service center for free, but that convenience isn’t always there with a prepaid card,” Weinstock says.
What’s the easiest way to avoid paying these fees? Find a card that doesn’t include any of them. There are plenty of them out there. McBride says that 73 percent of prepaid cards don’t charge customer service fees.