Who Are Prepaid Credit and Debit Cards For?
After credit and debit card fees were capped in order to avoid overuse and other forms of card abuse, in came the prepaid card — an alternative plastic means of payment that allows banks to collect their profits and fees while allowing users of the prepaid card to bank with their money using only their card.
Cons of Prepaid Cards
It would seem that the prospect of a multi-fee card would be of interest to no one. However, as research has found, most of the fees prepaid cards collect are hidden and more obscure. Most customers are presented with the proposition of no activation fee and convenient reloading. However, research conducted by PEW found that each prepaid card carries anywhere from seven to 15 different fees that range from $0.50 all the way up to $9.95. Many prepaid card companies anticipate that people won’t concern themselves with reading the fine print before signing up for a card.
Pros of Prepaid Cards
Even though prepaid cards have their cons — especially those hidden fees that increase the total cost of the card — there are several instances in which a prepaid card can be a better banking choice. How convenient and useful prepaid cards are for you should be based on a thorough analysis of the conditions of the card before you acquire the service. From the unbanked and underserved to the cautious traveler trying to avoid using their credit card, the prepaid card can be as functional and useful as your preferred choice of credit card.
Is a Prepaid Card Right For Me?
Prepaid cards are not for everybody. However, DailyFinance believes some financial profiles could benefit from what this alternative to credits cards has to offer:
- The Out-of-Control Spender. For people who have already had bad experiences with their credit cards, a prepaid card can serve as a useful and efficient way to budget spending and avoid acquiring new debts. With a prepaid card, you use your own money to buy things with many of the conveniences that a credit card offers, but without the dangerous potential for racking up debt. You, with the help of your paycheck, set your own spending limit.
- The Unbanked. A growing number of Americans either cannot — or simply choose not — to access traditional banking, including regular savings and checking accounts. If you are one of these people, a prepaid card might be right for you. Unlike traditional banking, a prepaid card has fewer requirements to acquire it and therefore can serve practically anyone; all you need is cash. The prepaid card opens the world of plastic payments without worrying about your traditional credit score, banking history, or credit record. However, these advantages come at a price.
- The Traveler. Going away on a trip abroad used to require getting to the bank and exchanging your currency for traveler’s checks so your money would remain safe from theft and only available with your signature and the showing of your passport. Today, credit cards are still a vulnerable target since high credit limits allow thieves to make a bigger profit off of this product. The prepaid card is limited by whatever amount you set on it beforehand and prepaid card providers offer a number of features to those who choose to use this product more often than the alternatives.
Payday Loans vs. Prepaid Cards
Prepaid cards can serve very specific purposes and are a financially savvy choice for certain users. Whether you’re looking to control your spending or eliminate traditional banking products from your life, there are instances when a prepaid card is the better choice. As an aid for emergency funds, however, payday loans provide a more relevant service.
While people can better manage their money using one of these cards, prepaid cards provide no extra funds other than the amount you load your card with. As good as prepaid cards can be for certain financial uses, payday loans are a better solution when facing an unexpected expense or financial emergency. Payday loans can easily be deposited into your personal bank account, covering amounts up to $1,000 if you’re approved.
Thoroughly researching financial products like prepaid cards can easily inform you whether or not the product is right for you. Remember, when it comes to financial products, seldom does one size fit all.