Editorial Policy

Prepaid Cards Don't Have to be Expensive

Eva Norlyk Smith Ph.D.

February 24, 2012

QHi Eva,

I've read about tons of complaints from GreenDot customers about their prepaid cards,  even the Wal-Mart 'Visa' card. Is there a prepaid card available without large reloading fees  and no monthly fees for inactivity? I don&#039t use PayPal, so I just want a card I can use as a debit/gift card on various shopping sites, so that I don&#039t have to risk a security breach by using an actual credit card. — Sally


ADear Sally,

Good question! Prepaid cards are growing more and more popular, and for good reason. They offer all the convenience of credit cards without any risk of overspending or hurting your credit history, since you can only spend what&#039s preloaded on the card.

That being said, the prepaid debit card industry has managed to make the convenience of using prepaid cards terribly inconvenient. Most prepaid cards come with a confusing array of fees.

It&#039s too bad because, as far as electronic payment solutions go, prepaid cards can be a great alternative to credit cards. As you point out, they are a solution for those concerned about online security risks (On a side note, you do have protection against online credit card fraud, but that is a different discussion.) Prepaid cards are also a great alternative for people who can&#039t get a credit card or for consumers who don&#039t have a bank account and parents wishing to give their kids the convenience of plastic while limiting how much they can spend.

With the prepaid card industry having that much going for it, it&#039s no wonder that it has been expanding at a clip of more than 20 percent per year, according to the Federal Reserve. With that kind of growth, you would think that competitive market forces would kick in to encourage some reasonably priced prepaid cards. Unfortunately, this has been slow to happen.Ask Eva

Still, there are some attractive low-cost options out there. Here are three prepaid cards that offer the convenience of plastic without a huge array of fees.

American Express Prepaid Card:
This card is as close to fee-less  as you will get. Unlike most prepaid cards, there are no fees for activating the card or for reloading money, as long as it&#039s done through your bank account. Again, unlike other prepaid cards, there are no customer service fees. You can view all card transactions online or contact customer service via phone without having to pay.

The one fee? Cardholders get one free ATM withdrawal per month. After that, there&#039s a $2 fee for ATM withdrawals (of course, the ATM used may incur additional fees).

As for other prepaid cards, how you use the American Express Prepaid Card does determine how expensive it is. You can reload money for free from your checking or savings account by entering your account information online. However, if you are not comfortable doing that, to load money, you will have to purchase a MoneyPak at a local retailer. A MoneyPak is basically a reload of your card — you can add up to $500 without having to give bank account info. This could be a deal-breaker for you, because the fee for that is a steep $4.95 per transaction.

So it depends on how much you plan to use the card. If you have to load money just once in a while, paying $4.95 for a MoneyPak will be worth it, since there are no other fees. And, of course, if you&#039re OK with transferring the money directly from your checking or savings account, you don&#039t have to worry about costs at all.

The Amex card comes with another advantage —  the Amex Make Your Move program, which offers a path to qualify for an Amex charge card based on regular use of the prepaid card (applications are still approved based on a credit review, however).

UPside Visa Prepaid Card:
This card offers another low-fee alternative, although it comes with considerably more fees. For users who load $500 or more each month, the monthly fee is $0.99.  Otherwise, it's $4.95. You can get cash for free by asking for cash back at the register when you're shopping. Otherwise, the fee for an ATM withdrawal is the standard $1.95 (plus applicable ATM fees).

Again, how low-cost the card is depends on how it&#039s used. Direct deposit is free, otherwise you pay similar fees as you would for the Amex card above. Customer service is free via email, but if you want to talk to someone on the phone, it costs a $2.99 customer service fee.

The $4.95 monthly fee would translate into nearly $60 per year. That's likely more than you'd be willing to pay, as you say you'll be using the card only occasionally.

Capital One Prepaid MasterCard:
This card offers a fee structure that's similar to that of the Upside Visa Prepaid Card. It'll cost you $4.95 monthly during months when you load less than $500 onto the card.

It has a couple of advantages over the Upside card, however. Customer service is free, and you get one free ATM transaction per month before the $1.95 fee kicks in.

In short, when it comes to prepaid, there is no ideal solution. However, with savvy use, prepaid doesn&#039t always have to be pricey.