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Since 2005, the popularity of an alternative to classic banking has emerged: the prepaid debit card. Many individuals have decided to drop their regular bank account and go with this option. Is it really worth it? Do you really save on fees? Is it that convenient? And more importantly, should you switch your bank account to a prepaid debit card?
A recent study from Breton Woods made an interesting comparison between the 2 banking options. It shows that in some cases, the prepaid debit card can turn out to be a great solution. In fact, they even claimed that “consumers who opt to use a network branded prepaid card could save 35-70% on fees as compared to low balance checking and debit accounts, making prepaid cards a far more valuable, cost-effective financial tool for many.”
The comparison reveals that:
- A typical consumer with a low balance checking account can expect to pay $200 to $350 annually in the form of overdraft fees, ATM fees, and minimum balance fees.
- Consumers using a system of money orders, check cashing and bill payment services can pay anywhere between $167 to $312 annually in various fees.
- A consumer using prepaid debit cards without direct deposit can pay $215 to $320 in annual fees.
- Users of prepaid debit card with direct deposit may pay between $108 to $207 in annual fees. For customers in the same income zone and usage patterns, this option may save a consumer about $96 to $146 over a basic checking account.
However, I would say that if you tend to manage your bank account responsibly, it will be cheaper for you to use a regular account. While the prepaid debit cards are easy to use and can help you manage your budget (since you can’t spend more than what is on it), the overall fees are quite high compared to a regular checking account (keeping in mind that you should avoid overdraft and NSF fees). Plus, many retailers, restaurants, professionals and so on use debit machine from Moneris or other companies for you to avoid ATM fees.
Which option is best for you?
If you want to make an educated choice, I suggest you take the time to read the Breton Woods study on this topic. Personally, I still prefer the regular checking account as it is easier for me to manage (I don’t have to load my card with money every month) and I pay minimal fees (because I always meet the minimum balance requirement). Lastly, I should mention that the manner by which you manage your budget / cashflow could influence which choice is best for you.
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Pretty hard to say man….but I do believe alot of people who have credit cards don’t actually know how to use them properly. The problem being that I think noone ever gave them any education about finances and how compound interest can make things very hard fif they don’t settle balances swiftly.
The problem with a straight comparison of checking account fees vs. prepaid debit card fees is that it leaves out the fact that many (tens of millions) of American’s simply can’t get a regular bank account since they are on the ChexSystems list (of people who have misused or overdrawn bank accounts without repaying past due fees). It also leaves out people who can’t afford the $1k to $5k minimum balance requirements of the big banks to qualify for “free” or reduced fee checking accounts. The best option for those people may be a prepaid card account. Luckily, the fees associated with these products have dropped significantly in the past year. Some of the better accounts can be found at http://www.getdebit.com/prepaid-debit-cards/
Here’s my take on Prepaid Debit Cards (payroll cards) based on my own experience:
I used to work at a large national restaurant chain and our card was pretty bad. But, from what I hear, it was typical because most cards either have a monthly fee or pretty limited as to the free items. I have worked at Starbucks for about 7 months now and they allow us to have a card called the Money Manager Card. The choice was pretty simple because there are no monthly fees, I can use it on their network (allpoint atms) free at all times, never any fees to buy things (signing or using my PIN and getting cash back if I want…all without a fee or surcharge), no overdraft. Let’s just say I haven’t paid a fee in the entire time I’ve had the card. It’s pretty simple to use it at no charge and I really don’t have to tip-toe around any limited free items like most other cards I have seen have.
Oh, and don’t lose most payroll cards! If you do, it’ll cost you $$ even to get the replacement sent by the post office. My new card give free replacements when delivered by the post office all of the time. Or, if I want, I can get it delivered by Fedex for $10. Pretty reasonable as I sent something by Fedex a month ago and paid $14!
My point is, if an employer is set on offering its employees a Paycard, it should do both the company and its employees and offer a Paycard that truly costs $0 to use. When I say $0, I mean $0. Not just $0 if you jump through certain hoops, etc.
I should state that Walmart has something that is similar sounding to Money Manager Card. I think it is the Money Card or something like that. That card is definitely not the same.
I did a quick Google search on Money Card when investigating the Starbucks offering and mistakenly clicked on a link to a Money Card “problem” page where people complained about it. Then, I realized that “Money Card” is not “Money Manager Card”.
Thought I would let you know so you don’t make the same mistake and get yourself a card that will end up costing you $$$$.