According to the Consumer Financial Protection Bureau (CFPB), consumers loaded approximately $65 billion onto prepaid cards in 2012 alone. As prepaid cards continue to expand in popularity, experts predict load and reload amounts to reach a staggering $112 billion by the year 2018.
Prepaid cards offer so many conveniences and benefits that it’s easy to see why consumers have grown to love them so much. Young adults in particular seem to prefer prepaid cards, but consumers of all ages and income levels find these cards useful as well. Here, we’ll take a look at five of the main things you should know about prepaid cards.
1. Prepaid Cards Have Purchase Protection
Some people mistakenly believe that prepaid cards are devoid of the same protections as bank-issued debit or credit cards. Actually, in the event that your prepaid card is lost or stolen, you will be afforded the same purchase protection as outlined by the major card issuer, whose logo appears on the front of the card.
In the past, prepaid cards didn’t have the same level of protection, but new regulations have been put in in place to give consumers even more assistance should their card go missing. Beginning in October 2017, if a lost prepaid card is reported in a timely fashion, the cardholder will be able to get most of their money refunded. This new rule, issued by the CFPB, will cover a wide range of prepaid cards as well as payroll cards and federal benefits cards, to name a few.
2. Prepaid Cards Won’t Harm Your Credit
Critics of prepaid cards often harp on the fact that prepaid cards do not build consumer credit. While this is generally true, one thing critics fail to mention is that prepaid cards also do not harm consumer credit either. Nerdwallet reports that the average household has over $16,000 in credit card debt alone. With numbers like these, it's easy to see how financially devastating using a traditional credit card can be.
Prepaid cards eliminate this problem by allowing the consumer to spend only the amount loaded onto the card. There is no high interest applied to purchases and the cardholder doesn’t have to worry about receiving a bill each month. Although prepaid card issuers don’t report to the three major credit bureaus, consumers don’t have to worry about affecting their good credit rating or further damaging a poor credit rating. For those trying to get out of a cycle of credit card debt, prepaid debit cards may be the best solution, since these cards allow the consumer to perform the same transactions as a credit card.
3. Prepaid Cards Fees Are Lower Than You Might Think
Another point critics of prepaid cards often make is that these cards are riddled with fees. While there are typically some fees associated with prepaid debit cards, they are not nearly as astronomical as critics assert. In fact, some checking accounts can rack up more fees than a prepaid card.
Typical fees of prepaid cards include reload fees, monthly maintenance fees, and ATM withdrawal fees, though there are ways to avoid many of these fees. For example, many prepaid cards have ATM networks that offer free or reduced withdrawals, and so long as the consumer stays within the network, they avoid the fee. Consumers can also take advantage of getting cash back at the point of sale, avoiding the ATM altogether.
When the CFBP regulations go into effect in October 2017, prepaid card issuers will be required to provide a monthly statement to cardholders. This will give consumers even more control and will allow them to see exactly what their card is costing them.
4. Prepaid Cards Are Great for the Budget-Conscious
Consumers who are budget-conscious or trying to get their finances back on track can really benefit from prepaid debit cards. Consumers with a traditional bank account who are prone to frequently overdrawing their account can find themselves locked in a never-ending cycle of fees. Small purchases can send an account into the negative, resulting in high overdraft fees, and even more fees the longer the account remains overdrawn. This practice can turn nearly any purchase into hundreds of dollars of fees. Prepaid cards are an excellent option for those who chronically face overdraft charges, since the amount on the card is all that can be spent. Using only what’s on the card can help cardholders make better purchasing decisions and budget their money better.
5. Reload Options Are Expanding
Prepaid cards have grown in popularity thanks to the level of convenience provided—and with more and more ways to reload, these cards are becoming even more easy to use. Currently, prepaid cards can be reloaded by in-person cash reloads, direct deposit, transferring money from another financial institution, and reloading at retail stores. Additionally, many card issuers are also allowing consumers to complete person-to-person payments and reloads, particularly if both parties have a card from the same issuer.
As you can see, prepaid cards have evolved over the years, and card issuers continue to find new ways to cater to prepaid debit card consumers. As with all financial products and services, consumers interested in a prepaid card should do thorough research to ensure they find the card that best suits their needs.
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