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Prepaid cheaper than checking?

By David McMillin ·
Friday, March 16, 2012
Posted: 9 am ET

Think your checking account fees are cheaper than a prepaid debit card? Depending on how much money you have, you may want to think again.

A new survey from Bretton Woods Inc. compares three types of consumers with low balances: those who use general purpose reloadable, or GPR, cards, those who maintain checking accounts, and those who rely on cash. The findings show that checking accounts cost this segment of consumers nearly 40 percent more than prepaid cards.

Here's a breakdown of the study's projected monthly costs.

  • Reloadable prepaid card customers with direct deposit: $8 to $20
  • Low-balance checking account customers: $15 to $37
  • Cash-based customers (those who use check cashing services): $9 to $48

The results do show that prepaid cards can be a cost-effective alternative to opening a checking account with fees, but the study makes one big assumption: These consumers will incur an average of five annual overdraft charges with a checking account.

Let's be clear: checking account customers can easily avoid overdrafts, too. When it comes to debit card overdrafts, banks cannot charge you unless you actually give them approval to do so. While the study's summary points out that overdrafts can still occur via checks and ACH withdrawals, an updated understanding of your balance and bill due dates can help eliminate this possibility, too.

As the banking industry tacks on more fees for checking accounts and makes avoiding those fees more difficult, the prepaid card industry is set to welcome many disgruntled customers. The study also highlights that millions of consumers are excluded from the banking industry due to bad account management histories, too.

If you're browsing for a prepaid piece of plastic, I do think that there are some prepaid cards that include reasonable fees and make good fits for the type of consumer this study analyzes. Still, the lack of regulation that governs this section of the financial industry can leave cardholders more susceptible to issues such as full liability for unauthorized transactions. Before you load your hard-earned dollars on to a prepaid card, be sure to carefully read the fine print and compare your options to find the best deal and the best protection.

What do you think of prepaid cards? Have you considered closing your checking account in favor of a reloadable piece of plastic?

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John Freeman
March 24, 2012 at 1:33 pm

If I were the 1 having to write this content, all these readers would be disappointed. It is a great thing you are the writer and you bring fresh concepts to us all. This is interesting.

March 16, 2012 at 11:09 am

find a credit union or bank that doesn't charge fees and that beats any of the choices you mentioned. I've been at many banks across the country and i've never been hit with any types of fees. There are plenty of options, you just have to take the time to find them.