You might not want this card in your wallet
Whenever I hear about prepaid debit cards, I can’t help but think about the Seinfeld episode where Kramer gets angry at the blood bank for charging him to access his own blood. I can’t explain it . . . it just got stuck in my head.
So what’s the deal with prepaid debit cards? Why do they enrage so many personal financial experts? Why do celebrities endorse them? What are their upsides? We’ll attempt to sort out the details, but I make no promises.
The Facts
Prepaid debit cards are similar to bank debit cards and credit cards in that they are made of plastic, have similar dimensions (roughly 3in x 2in), have 16-digit numbers, and have a magnetic strip on the back. After that, they couldn’t be more different.
Unlike bank debit cards, or ATM cards, prepaid debit cards are not associated with a brick-and-mortar bank. Prepaid debit cards allow you to access the money that you “load” into the card through whatever company distributes that particular card. With a traditional debit card, you are allowed to access the money within your checking or savings account.
Also, there is no credit when it comes to prepaid debit cards. You only have access to the amount of money that you pre-loaded (or pre-paid) onto the card. When your money runs out, you must load more cash onto the card before you can use it; there is no line of credit.
Although she hasn’t directly stated it, Suze Orman has alluded that her card will help raise your credit score. She might be trying to accomplish this feat in the future, but right now prepaid debit cards have absolutely no effect on your credit score.
The Problem With Prepaid Debit Cards
Personal views and varying perspectives directly affect a person’s stance on the prepaid debit card – with opinions ranging from annoyance to passionate hatred. But most prepaid debit card irritations stem from the fees.
It seems to hit a nerve with most people when you’re charged fees to access your own money. What compounds this anger even more is that prepaid cards are usually marketed toward lower-class individuals who can’t get a credit card or who don’t have enough money to open or keep a checking account.
When a system feeds on the poor and underprivaledged, it usually isn’t received well in the public eye.
Fees can range from $3-$5 monthly charges just to have the card, fees for ATM transactions, fees for customer service calls, and fees for non-direct deposit transactions.
Celebrity Endorsements
Public figures such as the Kardashians, Russel Simmons, Lil’ Wayne, and Suze Orman have all tossed their celebrity hats into the prepaid debit card ring. From their perspective, it’s an easy way to earn a buck (just don’t worry if you’re lending your name to something that suckers hard-working people out of their money).
The problem with a celebrity endorsing a product such as a prepaid debit card is the weight of importance of what the card involves – your money. This isn’t shoes, it’s not a clothing label, it’s not headphones, and it’s definitely not smoked sausage.
This is your lively hood, it’s how you put food on the table, how you buy clothes for your children, how you keep the heat and electricity from being turned off. Such a thing shouldn’t be decided on based upon which famous person is paid to endorse it.
Sure, it comes down to a personal choice. But marketers know that people are swayed by celebrities. Company’s figure if they flash Kim Kardashian out there, no one will notice the $60 fee for using the card.
Instead of trusting the celebrity endorsement, become more vigilant about reading the details when getting involved with anything concerning your finances. You can’t always trust the smiling face.
Any Upside?
If you put me in a headlock, I guess I’ll admit there are a few circumstances where using a prepaid debit card isn’t the worst thing imaginable. But with online banks like PerkStreet Financial completely revolutionizing the banking status quo, I’d still try something like that over a prepaid debit card.
Nevertheless, prepaid debit cards can be used in short-term situations to help someone get back on their financial feet. If you’ve been kicked out of your bank for too many overdrafts or an inability to maintain a balance, using a prepaid debit card will allow you to pay bills with a card while you get things back on track.
Prepaid cards can also be a good choice when sending kids off to college. Instead of giving them a open-ended line of credit, giving them a debit card with a set limit can help save a financial crisis.
Time to sound off . . . whats you’re take on the prepaid debit card?
Photo By Neil T
{ 2 comments… read them below or add one }
When my daughter was in high school, I opened a Visa Buxx card at Wachovia. I could load money onto her card and she could use it like any other card. Things I liked about it were that the cash was available right away, the only fee associated was with each load of cash there was a $2 fee, for any amount. I do think there was a fee for a withdrawal of cash, but she rarely did that. There wasn’t an annual fee either, just that $2 per load.
That sounds like the best plan when making a decision about giving your kids access to any type of card. I’m curious if my bank offers a maximum buy dollar amount. I know you can set alerts for large purchases, but I wonder if you could set a limit on a single purchase with a regular check card. I’m going to go research that. Thanks for the input.