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Are prepaid cards worthwhile?

By Leslie McFadden · Bankrate.com
Thursday, November 18, 2010
Posted: 12 pm ET

In case you aren't keeping up, the Kardashian sisters launched their very own Kardashian Prepaid MasterCard last week, in partnership with Mobile Resource Card. The website KardashianKard.com is marketing the prepaid card as a "fast and convenient way to manage money."

That convenience comes at a cost. The Kardashian Kard has "many of the same hidden fees and weak consumer protections as other prepaid cards," according to a press release from Consumers Union, the nonprofit publisher of Consumer Reports.

Those fees include a $1.50 fee for ATM withdrawals, a dollar fee if the ATM withdrawal or point-of-sale transaction is declined, and a $9.95 fee to replace a lost or stolen card. Even canceling the card will cost you $6.

In addition, consumers have to choose from a six-month plan that costs $59.95, which includes the purchase fee, minimum deposit and monthly fee for the plan period; or a 12-month plan that costs $99.95, which includes the same fees as the shorter plan.

The drawbacks of prepaid debit cards
Fees on prepaid cards vary widely from card to card. A previous study from Consumers Union on prepaid debit card fees found that card activation fees ranged from $0 to $29.95 and monthly fees went as high $10 a month.

Consumers Union also points out that prepaid cards don't carry the same protections that debit cards have in the event of fraud. If a consumer contacts the issuer about a lost or stolen debit card within two business days, the cardholder is only liable for $50 in fraudulent charges, which increases to $500 if the loss is reported after two days but within 60 days. Any protection offered on a prepaid card is voluntary, subject to change and not mandated under federal law.

You may sometimes see prepaid cards referred to as "prepaid credit cards," but they are not credit cards. You can't carry a balance and you don't get the same fraud protections that credit cards have. Maximum liability for fraudulent charges on a credit card is just $50, and $0 if the loss is reported before unauthorized transactions occur.

What are the benefits of prepaid cards?
On the plus side, consumers get the convenience of paying with a card, can only spend the funds loaded onto the card, and can't get into expensive debt. The cardholder faces no potential for missed payments and late fees because there is no monthly bill. Consumers can also qualify for the cards even if they have bad credit, though most prepaid cards don't help to build credit history at the three major credit-reporting agencies.

If you're considering a prepaid debit card, make sure to check out the fee schedule before buying. Add up the fees you would pay through typical use of the card. For additional tips on choosing a card, check out the Bankrate story, "Don't overpay for prepaid debit cards."

Would you get a prepaid card for your teen? Share your thoughts in the comments.

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3 Comments
MadMaxxy
November 22, 2010 at 2:55 pm

Patrice Said: "2 sets of username/passwords for accessing the account: one for you and one for you kids."

And the purpose of this would be ?????

I suspect more from your comments that you work in advertising for or have interest in the prepaid cards company.

Patrice Peyret
November 19, 2010 at 12:50 pm

Prepaid cards are worthwhile when choosing wisely. Community banks and credit unions trying hard to help their customers at a low cost, should not be bashed because large irresponsible banks have been abusing theirs. In the same way, there are low-fee feature-rich prepaid cards that should not be lumped together with the kind of fee-harvesters pushed by the Kardashians.

The right kind of prepaid card for teens does something that 95% of standard checking accounts can't do: provide parents with a way to supervise spending without having to share a username/password with their teens for online access to a bank account.
Try this with your bank: open an account for your teen and get your bank to provide you with 2 sets of username/passwords for accessing the account: one for you and one for you kids. Good luck with that.