Prepaid cards | How to pick the right card & avoid outrageous fees

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You see them when you go into drug stores, gas stations, convenience stores, supermarkets, discount stores, you name it. They’re prepaid cards and they’ve become ubiquitous.

Prepaid cards are an alternative to credit cards, debit cards and good old cash. They look a lot like a credit card and you use them like a credit card, but that’s the end of any similarities.

Here’s how they work: You deposit money on account that can be used as if it were a credit card (but without consumer protections) or like an ATM card to withdraw money (but without the protections of an ATM card.)

Prepaid cards may boast a Visa or MasterCard logo — or an American Express logo, to a lesser extent — but they’re really just inferior facsimiles of the real deal. These cards are loved by millennials because you can’t spend more money than you have. So they’re a way to store money and pay for things without having a traditional bank account.

But… they typically fee you to death!

Celebrities and entertainers have flocked to put their branding on prepaid cards because they’re a great marketing opportunity. Everyone from the Kardashians to Suze Orman has had their own prepaid card in the past. Yet many of them failed because of the horrible terms of service.

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Watch out for these fees on prepaid cards

It’s not uncommon for prepaid cards to have a monthly fee of up to $9.95, a cash reload fee of up to $4.95, a $2.50 fee to use an ATM, an online bill pay fee of $1 and a card replacement fee of up to $9.95.

And that’s not to mention additional fees to talk to customer service, a signature transaction fee, foreign exchange fees… and the list goes on! Of course, it is possible to find a select few prepaid cards that have next to no fees.

The thing is, many prepaid cards have no easy disclosure of their fees. Thankfully, Visa has agreed to prominently mark prepaid cards that meet a few basic consumer-friendly practices, such as:

  • Flat monthly fee for purchases and in-network ATM transactions
  • No fees for cash-back when you’re making a purchase
  • No overdraft fees
  • Easy-to-understand disclosure of terms and fees
  • FDIC protection on your funds

How should you choose a prepaid card?

When you’re picking a prepaid card, the most important thing to do is to read the terms and conditions closely to know what you’re getting into.

My favorite prepaid cards give you the ability to use the card with no fees, along with offering at least some basic consumer protections. Those protections can include restoring your funds if your card is lost or stolen or that your money is safe if there is fraudulent activity on the card.

You’ll typically have to do certain things with most prepaid cards that offer either low or no fees. For example, there may be free ways to add money to a card versus fee-heavy ways to do the same. Or you may get access to one ATM network for free across the country, but not to another network. Likewise, some issuers may charge a replacement fee if the card is lost or stolen while others won’t.

The most common way to avoid fees is by making regularly scheduled deposits once a month to the prepaid card of your choice.

Remember, you’ve got to look carefully at the terms and conditions to see if a card you’re considering would work in your life. This is your money we’re talking about. Don’t waste it!

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