Prepaid cards, more formally known as "general purpose reloadable cards," have rapidly gained a place in Americans' wallets. They work similarly to bank debit cards except that there is no checking account associated with the card. Instead, money needs to be loaded onto the card before it can be used.
While the Consumer Financial Protection Bureau is working to regulate prepaid cards, the issuers of these cards are not currently required to offer consumers free access to account information, fee disclosures and protection from loss and unauthorized transactions. The CFPB’s efforts are due, in part, to the advocacy work of Consumer Reports, which has been lobbying for consumer protections for the past decade.
The cards we’ve rated, however, do voluntarily provide such protections already. They are also FDIC insured up to $250,000 if the financial institution providing the card fails.
Prepaid cards are growing in popularity. Americans charged $220 billion, accounting for four percent of all payment card purchases made at merchants in 2014, the latest year for which data are available, according to The Nilson Report newsletter. By contrast, credit cards account for 54 percent of payments and traditional bank debit cards were used for 42 percent of payments.
If you are thinking about getting a prepaid card, weigh your options before buying one. Here’s what to consider.
Do you need a prepaid card? If you don’t want to open a checking account, perhaps because of minimum balance requirements or fees, a prepaid card can be used as an alternative. It can also help you stay within budget. You could have one card, for example, just for buying gas, another only to be used in a grocery store and a third, perhaps, for a teenager in the family to use.
Where should you buy a prepaid card? They are available in many stores or online. You’ll see cards with catchy but unfamiliar brand names as well as cards from traditional banks, including Chase, U.S. Bank, and BB&T. Our recommendation is to consider cards such as American Express-Walmart Bluebird, Chase Liquid Visa, Green Dot Prepaid Visa and Halogen Reloadable Prepaid MasterCard, issued by Green Dot Bank.
What are the fees, terms and conditions? Look into this because they differ dramatically among providers. They can be difficult to compare because not all prepaid card issuers use the same terms. For example, The Walmart Money Card describes the cost of getting the card as a “purchase fee.” But the US Bank Contour Card calls it an “enrollment fee.”
Another problem: Consumers may find it difficult to compare monthly fees among card. While most cards provide at least one free way to deposit money onto a card, some may require the user to pay a third party “reload fee.” But it can be hard to know how often you’ll need to reload the card, especially before you being using it.
Among the fees to compare if you're considering a prepaid card:
• Activation or initiation fees
• Monthly fees
• Point-of-sale transaction fees
• Cash-withdrawal fees
• Balance-inquiry fees
• Fees to receive a paper statement
• Fees to call customer service
• Bill-payment fees
• Fees to add, or "load," funds
• Dormancy fees for not using your card
• Fees to get your remaining funds back when closing the account
• Overdraft, or "shortage," fees
How do you load money onto the prepaid card? It’s easy. Just give cash to a clerk at a participating retailer or bank and it will be credited to your prepaid card. You can also arrange to have money automatically deposited by your employer through direct deposit services. Or, you can use your mobile device to take a photo of a check and deposit it to your card.
Is it easy to make purchases using the prepaid card? The process is similar to using a debit card. You give it to the cashier at a store when making a purchase. You can also use it for online payments up to the value stored on it. Depending on the card you choose, it may offer other services such as online bill pay, check writing (though this is not common) and free cash withdrawals at bank ATM networks.
We rated 20 prepaid cards based on four categories:
Value is calculated by applying the card’s fee structure based on two typical spending patterns: (1) an adjunct (low usage) to a checking or other bank account and (2) a substitute (high usage) for a bank account.
Safety is based on whether funds are covered by FDIC insurance.
Fee Accessibility & Clarity measures the ease of finding and understanding information and disclosures about the fees.
Convenience evaluates the essential features of the prepaid card, including how widely the payment network brand on the card is accepted. This year’s ratings are not directly comparable to our previous years’ ratings, because of refinements we’ve made to the criteria and weights.
Bottom Line: The best prepaid cards that we recommend are convenient and come with low fees.
We should point out that we are not currently recommending the Prepaid Visa RushCards. In October 2015, we suspended our recommendation of these cards because of the widespread problems customers were having when using them (RushCard was in the process of transitioning to a new card-processing vendor). The CFPB, which ensures that financial service providers operate fairly, launched an investigation shortly afterwords, which is ongoing.
We're monitoring consumer complaints registered with the CFPB. The complaints have declined after an initial spike—a step in the right direction. Our suspension remains in place until we are convinced that this issue has been fully resolved.
