5 prepaid debit card pitfalls to avoid

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The downside of prepaid cards
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Prepaid debit cards often are pitched as a cheaper alternative to checking accounts. After paying billions of dollars' worth of checking fees over the years, that's a pitch consumers are finding increasingly appealing, says Tom Feltner, director of financial services at the Consumer Federation of America.

"It's an area where we've seen exponential growth over the last 10 years," he says. "We've seen the cost of these products come down and the number of fees reduced. But at the same time, there are still consumer-protection challenges."

Regulators are examining industry practices to see if more needs to be done to protect consumers, Feltner says. Bankrate's latest Prepaid Debit Cards Survey found that consumer-unfriendly card terms such as inactivity fees can cost customers big time.

The data gathered by Bankrate seem to suggest that the key to avoiding those consequences is doing your homework before loading up a card with cash, says Greg McBride, CFA, Bankrate's senior financial analyst.

"Depending upon your intended usage, there can be a big difference in terms of what that card is going to cost you on a monthly basis. So it's important to really search out a card that most complements your intended usage," McBride says.

Aside from the normal fees you might expect on a prepaid card, here are some pitfalls to avoid.



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