A new study from Consumer Reports shows that the costs of loading money on prepaid cards are beginning to get more affordable.
The report shows that activation fees typically range between $3 and $14.95 for today's prepaid cardholders -- a sharp drop from three years ago. In 2009, the same report uncovered fees between $10 and $39.95.
Another significant shift between the report's 2009 results and today's prepaid environment is the absence of "shortage" fees. In 2009, many of these card companies charged extra fees for purchases that exceeded available funds. I'm not surprised that issuers are doing away with these fees. Many companies promote the lack of overdraft charges as one of the attributes that make prepaid more cost-effective than traditional checking.
The decline in fees is certainly good news for anyone considering prepaid plastic, and the report shows that the cost model for prepaid plastic is similar to that of today's checking accounts at banks. There are fees, but many of them are avoidable. While 13 of the 16 cards included in the study have monthly fees, some of them will waive those fees for making a direct deposit each month. Most banks operate the same way: In exchange for meeting certain requirements, that dreaded monthly fee will disappear.
However, the report mentions a few potential expenses that any cardholder should avoid. Some companies charge as much as $2.99 for calling the card's customer service department. With the complicated terms of these cards, customers should be able to ask questions -- without incurring a cost for their inquiries.
Let me be clear: I still believe checking accounts beat prepaid cards. Account holders receive better benefits such as FDIC insurance, and the banking industry is simply more regulated to protect consumers like you and me. Still, I recognize that some consumers do not have access to traditional banking. If you fall into this category, I think this report reinforces the importance of shopping around for the best deal on a prepaid card. Find the company that offers the lowest fees, and be sure to consider your current spending habits to estimate how much each card will cost each month.
What do you think? When are prepaid cards a good choice?