The latest research from Bankrate shows prepaid debit cards are becoming a more viable alternative to checking accounts for some consumers. But those who use them may find the cash they load onto prepaid cards can be quickly frittered away by fees.

ATM fees a pain with prepaids

If you’re the type of person who often uses ATMs to withdraw cash, prepare to be peppered with fees. Unlike banks or credit unions, many prepaid cards don’t have networks of ATMs that cardholders can use for free.

Bankrate’s 2015 Prepaid Debit Card Survey was conducted Feb. 2-10 and included 31 cards. Here are some of the highlights of the survey:

  • Some 29 percent of prepaid debit cards aren’t associated with an ATM network at all, meaning you’ll have to pay a fee to use an ATM.
  • Even if your card is linked to an ATM network, you’re not necessarily protected. Of the prepaid cards that are linked to an ATM network, nearly one-third still charge cardholders a fee for using ATMs. Fees range from $1 to $2.50.
  • For all the cards surveyed, withdrawing from an ATM outside their network results in a fee of $1 to $3.

Also, it’s important to remember those fees don’t even take into account the separate fee you’ll pay to the bank that owns the ATM. That fee averages $2.77, according to Bankrate’s most recent data.

Bottom line: Many prepaid card holders will be paying north of $5 every time they make an ATM withdrawal.

Checking your balance can be costly

Trying to keep tabs on your prepaid card balance can rack up fees quickly, too.

For instance, if you think you can check your prepaid card balance for free at an ATM, think again.

  • In our survey, 39 percent of prepaid cards charge a fee for checking your balance at any ATM. That fee ranged from 50 cents to $1.50, regardless of what ATM you use.
  • Another 42 percent let you check your balance for free at in-network ATMs, but charge a fee of 50 cents to $3 to do so at out-of-network ATMs.

Receiving a paper statement also doesn’t come cheap. The majority of cards — 55 percent — charge a fee to receive a statement in the mail, ranging from $1 to $5.95.

To avoid getting fee-bitten, prepaid debit card holders probably need to have some way to check their balances electronically, either with a mobile device or on a computer.

Pay to play

Many prepaid cards hit you with a fee right off the bat. In Bankrate’s survey, 48 percent of cards charged an issuance or activation fee, ranging from $1.88 to $9.95.

One way to avoid paying those fees is buying your card online. Thirteen percent of cards would waive activation fees for customers who bought their cards online.

You’re also likely to get hit with a monthly fee, just for carrying a prepaid debit card. Nearly three-quarters of prepaid cards in our survey had a monthly maintenance fee.

That’s actually down from last year, when 83 percent of prepaid debit cards carried a monthly fee. But you’re still much more likely to pay a monthly fee with a prepaid card than you are with a credit union checking account (28 percent) or a bank checking account (62 percent).

Some wiggle room: Many prepaid debit cards will waive the monthly fee if you set up a direct deposit to your card. In all, 52 percent of prepaid cards surveyed either offer ways to waive the monthly fee or are free by default.

Watch out for prepaid ‘overdraft’

Some prepaid debit card providers offer the same kind of “courtesy overdraft” that covers purchases when you don’t have the cash necessary to do it. The amount of the purchase is then deducted from the card’s balance as soon as more money is loaded on the card, along with a hefty fee.

Most people in the market for a prepaid debit card will want to avoid cards with these fees, says Rebecca Borne, senior policy counsel at the Center for Responsible Lending.

“One thing we know about consumers who use prepaid cards is that many of them have chosen prepaid cards because they don’t want to overspend,” Borne says. “A lot of these consumers have lost checking accounts because of overdraft fees in the past.”

Fortunately, prepaid card overdraft fees are rare. Just two of the 31 cards surveyed had an overdraft fee, and one only on a case-by-case basis.

More common are fees for trying to make an ATM withdrawal that exceeds your balance. Nearly a quarter of cards — 23 percent — charge a fee ranging from 75 cents to $2 for transactions declined at the ATM.

Weird fees persist at the margins

General purpose prepaid cards are still a relatively young product, and some of them are still carrying fees that may surprise you.

  • Sixteen percent of cards charge some kind of fee for making a purchase at a point of sale, ranging from 50 cents up to $2. You’re more likely to be charged for PIN-based transactions than signature-based transactions.
  • Inactivity fees, charged to cards that aren’t used for a certain period of time, still appear on 16 percent of cards.
  • The number of prepaid cards charging for a call to customer service is falling, but 16 percent of cards still charge a fee of 50 cents to $4.95.

Converging with checking accounts

As the so-called general purpose reloadable, or GPR, prepaid market continues to mature, it’s likely that prepaid cards will shed some of their weirder fees and continue moving closer to the way checking accounts work, but without the huge overdraft fees and consumer reporting agency ChexSystems hurdles.

“One of the biggest changes was the cards mimicking (demand deposit accounts), such as the AmEx Bluebird,” says Nick Holland, head of payments at Javelin Strategy & Research. “This, coupled with mobile features and easy reload, made GPR a winner for folks looking for more control over their finances or for those that have had challenges accessing traditional banking services.”

More protections coming

In the future, prepaid card holders bombarded with fees, especially overdraft fees, could get some help from the Consumer Financial Protection Bureau, or CFPB, which is in the final stages of crafting a rule that would give it the power to regulate prepaid debit cards.

The CFPB is considering:

  • Requiring cardholders to consent before they’re signed up for overdraft or lending attached to prepaid debit cards, and making it against the rules for prepaid debit cards to automatically take loaded funds to pay off overdrafts.
  • Giving cardholders the same fraud protections credit card holders get.
  • Making sure cardholders’ funds are insured by the Federal Deposit Insurance Corp.
  • Standardized labels for prepaid cards that clearly lay out the card’s fees.

“It provides a lot of protections around prepaid cards that are currently lacking,” Borne says.

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