Prepaid debit cards can serve as great gift ideas as well as a means for parents to disperse money to their children in the form of an electronic allowance. Prepaid debit cards can also provide their users with the accountability of a limited spending limit so as to avoid frivolous charges. But for all of the good that prepaid debit cards can do, there are many facets of these products that may turn off consumers. Below is a list of reasons to avoid prepaid debit cards.
- Copious fees. Prepaid debit cards are notorious for the copious amount of fees that they can levy against their users. Not only do many prepaid debit cards exact an account activation fee, but certain prepaid card lenders also charge the user a transaction fee per purchase, a balance inquiry fee, a cash withdrawal fee from both ATMs that are not owned by the issuer as well as those within the issuer’s network, and similar maintenance fees. Even if a consumer finds a prepaid debit card which doesn’t charge the majority of such fees, the chances are still very high that they will end up paying more by using their prepaid debit card than they would were they to open a standard purchase debit card and chequing account. Another thing for consumers to consider is that these fees add up over time and essentially result in a heavy cost for using one’s own money.
- No credit assistance. Prepaid debit cards are very rarely reported in such a way that will reflect on the account holder’s credit score. A prepaid debit card user can use their card in all the right ways, incurring no overdrafts or extra penalties but the odds of their model money management being a boon to their credit score are very low. The same is usually true for most standard debit card accounts as well. With a credit card, on the other hand, the consumer would be able to slowly establish creditworthiness with every balance that they pay in full and every spending limit whose 30-50% usage they do not exceed. In this way, prepaid debit cards are akin to the prepaid debit card user spinning their wheels in the world of credit and getting nowhere.
- Stricter notification requirements. With a credit card and with certain standard debit cards, the card holder may experience fraud on their account and yet not be required to repay the stolen funds. At the very least, many issuers have instituted a limited liability policy that states card holders need only repay a certain amount of the fraudulent charges, typically around $50-100 at most. This is usually true, whether the card holder becomes aware of and notifies their bank about the fraud on the same day it occurs or one week later. Prepaid debit cards, however, have much stricter notification requirements than the other products. With a prepaid debit card, users must notify the issuer the same day that the fraud takes place if they hope to escape without being liable for the stolen amount. If a prepaid debit card user does not learn of the fraud until days later, they will probably have no hope of recouping the stolen funds.