by Jason Alderman
According to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, we live in a credit-dominated society. “Without a checking or savings account,” she says, “it’s difficult to cash payroll, Social Security and unemployment checks; you need a credit or debit card to shop online, book a flight or rent a car; and you may be forced to carry large amounts of cash to pay bills.”
One increasingly common money management tool for people in this situation is prepaid cards. These cards look and work much like regular debit cards except that instead of funding them through a checking or savings account, you load money on the card by cash, check, funds transfer or direct deposit by an employer or government entity.
COMMON PREPAID CARD FEATURES INCLUDE:
• You don’t need a bank account or solid credit rating to obtain one.
• They start out with a zero balance until you add
money. Purchases or ATM withdrawals will
diminish the card’s balance until it reaches zero
and you discard it (as with gift cards) or you reload
• Spending is limited to the amount loaded on the
card, so you can’t buy more than you have.
• Cards can offer “Zero Liability” protection if you
promptly report loss, theft or fraudulent charges.
• Most allow ATM cash withdrawals and online or
• They’re safer to carry than large amounts of cash.
COMMON TYPES OF PREPAID CARDS INCLUDE:
• Reloadable cards – to which more money can later
• Gift cards – used until their balance is depleted;
they’re not reloadable.
• Teen cards – where parents can reload the cards
and monitor purchases online or by phone
(allowing teens a chance to manage spending and
budgeting in a controlled environment).
• Travel cards – a safe alternative to cash and
• Payroll cards – wages are loaded into the card’s
account for immediate access (similar to checking
account direct deposit).
• Government agency-provided cards – benefits such
as Social Security and unemployment are loaded
into your card account.
• Healthcare cards – allow point-of-service access
to funds in your Flexible Spending Account or
Health Savings Account to pay for qualified medical
Prepaid cards may come with fees and restrictions, so it’s important to read the card’s terms and conditions carefully and to shop around for the best deals. Good comparison sites include www.bankrate.com and www.creditcards.com.
HERE ARE A FEW QUESTIONS TO ASK WHEN COMPARING CARDS:
• What identification do I need to buy this card?
• Where can I use it? (Certain retailers only? Online?
• Can I later add funds to it? For example, will it
accept direct deposit of payroll or Social Security
• Is there an expiration date?
• Will I receive monthly statements?
• Can I check balances by phone or online? What fees
apply? Common fees include those for card
activation, reloading funds, balance inquiries, ATM
or bank withdrawals and declined transactions.
• What happens if it’s lost or stolen?
Bottom line: Always make sure you fully understand the terms and conditions of any financial product or account before signing up.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney