You choose the dollar amount to put on the card, and as you spend, your purchases are deducted from the total balance. When the balance gets low, you can reload with more money.
Once mainly for low-income people who couldn’t get a bank account, they’re now being used by young people on a budget, parents of college kids as an alternative to credit cards, and consumers who don’t want to deal with banks, such as those tired of overdraft fees.
Now they're the fastest growing payment method. Americans spent about $37 billion on prepaid debit cards last year – double the amount from 2009, according to the Network Branded Prepaid Card Association.
All 31 prepaid debit cards Bankrate.com recently surveyed charge a fee, but the type of fees, amounts, and ability to avoid the fees can vary widely.
Monthly service fees, activation fees, and fees for calling customer service have declined over the past year. But fees involving the ATM, just as with bank accounts, are on the rise.
The cost for withdrawals, balance inquiries, and declined transactions at the ATM are more likely to have increased than decreased in the past year.
“Many of the higher fee cards seen in the past have been marginalized or even discontinued, while the newer entrants often have more transparent fee structures and in many cases, avoidable fees,” said Greg McBride, chief financial analyst for Bankrate.com.
Monthly service fees
- 26 percent of the cards have no monthly fee, up from 17 percent last year, but still down from 38 percent, on a smaller sample size of 24 cards, two years ago.
- The range of fees is $1 to $9.95, which is consistent with last year.
- In addition to the eight cards with no monthly fee, eight more, or 26 percent, will waive the fee, usually based on having direct deposit, an amount automatically loaded on the card, or a linked checking account with that bank.
- 52 percent of the cards either have no monthly fee or will waive it, up from 50 percent last year.
- Nearly half, 48 percent, have an activation fee ranging from $1.88 to $9.95, depending on where the card is purchased.
- But 13 percent, up from 10 percent last year, don’t charge an activation fee if the card is purchased online.
ATM withdrawal fees
- Unlike bank accounts, where limiting your ATM withdrawals to the bank’s own ATMs is a surefire way to avoid fees, it’s not so cut-and-dried with prepaid cards.
- 29 percent of the cards aren’t associated with an ATM network. Of those with ATMs, 68 percent don’t charge, while 32 percent charge a fee ranging from $1 - $2.50. These findings are consistent with last year.
- All 31 cards assess a fee, ranging from $1 to $3, for going outside the ATM network.
ATM balance inquiry fees
- Checking the card balance at an ATM will usually cost you; 81 percent of the cards, up from 77 percent last year, charge a fee between 50 cents and $3 at some or all ATMs.
- 13 percent, up from 10 percent last year, don’t charge for balance inquiries at any ATMs, while 6 percent don’t permit balance inquiries at the ATM.
- These fees remain rare. On PIN-based transactions, 77 percent of the cards don’t charge a fee. On signature-based transactions, 87 percent of cards don’t charge a fee. Of the few cards that do charge this fee, the range is 50 cents to $2 for PIN transactions and 50 cents to $1 on signature transactions.
Monthly statement fees
- 55 percent charge for receiving account statements by mail, with fees ranging from $1 to $5.95.
- 35 percent don’t charge to receive paper statements in the mail, while 10 percent don’t even offer mailed statements.
- Only 6 percent of cards offer paper statements at ATMs, and all charge either $1 or $2.50.
Customer service fees
- Customer service fees are declining sharply. Only 16 percent of cards charge for customer service calls, down from 27 percent last year.
- The fees range from 50 cents to $4.95 depending on the type of call.
Declined transaction fees
- 71 percent don’t charge for declined transactions under any circumstances, while 6 percent charge $1 for any declined transaction.
- 23 percent of cards charge between 75 cents and $2 only for transactions declined at the ATM, up from 10 percent last year.
- 84 percent of the cards don’t charge an inactivity fee, about the same as last year.
- Among the 16 percent that do charge, the monthly inactivity fees range from $1.95 to $5.95.
- 94 percent of cards don’t permit overdraft on purchases. The cost is similar to that of bounced checks and ranges from $15 to $34.
Bill payment fees
- Only 6 percent of the cards charge a fee, ranging from 50 cents to 95 cents.
- None of the issuers that Bankrate.com surveyed charge reload fees.