Why Prepaid Cards are becoming America’s Favorite
Prepaid cards aren’t associated with bank accounts. You can deposit and withdraw an unlimited amount of money onto these cards from an ATM as well as make payments through them at any place where credit and debit cards are accepted. Because you can only spend up to the amount that is loaded onto the card, the risk of over withdrawing your account is non-existent, thereby avoiding overdraft fees.
In recent years, their popularity has increased to such heights that big banks, tech companies, drugstores, celebrities and organizations as well have released their own versions of them.
It is often looked at as a substitute banking product for American who do not have bank accounts. However, such people are not the primary users of such cards anymore. This has been concluded on a survey conducted by Pew Charitable Trusts that interviewed 613 card users. As a matter of fact, majority of respondents, 59%, have checking accounts as well.
Many prepaid card users reported having trouble with credit card debt, overdraft fees and overspending previously- with two in every five customers having to close their own checking account or having and existing account closed because they have incurred numerous overdrafts. Another common reason for using prepaid cards is that it helps them to avoid spending more than what they have and also to avoid high credit card debt.
“I am already negative in my checking account. So with this, I know what I can put on and what I can and cannot use,” said one respondent in Pew’s survey.
Prepaid card users without a bank account say they want to be capable of making purchases online. “I’m avoiding banks, and I still have Netflix, so I need to pay for it with some sort of plastic because you can’t pay for things online with cash,” said another user.
Many people felt that it is safer to use a prepaid card rather than walking around with bundles of money on them and hence made the switch. Others preferred that prepaid cards permitted them to conduct their transactions more anonymously- considering that they aren’t associated to a bank account. Another set of consumers said the simply aren’t able to qualify for checking accounts.
Is a prepaid card a sound idea?
Charges were a big problem associated with these cards, and still are in innumerable cases. But as the demand for them is increasing, more reasonable options are being introduced in the market. Some of these new entrants carry lighter fees as compared to traditional checking accounts.
Altogether, prepaid are basing their fee models on those of checking accounts, including ridding them of additional fees such as customer service charges and charging monthly fees that are more consistent. This is a more favorable development, according to Pew, as customers are less likely to be asked to pay for charges they were weren’t expecting.
Also, out of the 10 largest prepaid cards, 3 are issued by banks, which is more advantageous to consumers as they carry lower and clearer fees.
With prepaid cards, however, these still exists a big problem. While traditional bank accounts are regulated by federal laws, prepaid cards continue to be unregulated. Thereby, the limit of fees that can be charged, protection from fraud losses, insurance coverage, etc. are remain uncontrolled.
“While prepaid cards offer many benefits to consumers, they are a relatively new product with little oversight. A lack of protections undermines prepaid cards as a safe and easy way to manage money,” said Susan Weinstock, director of Pew’s safe checking research, in a statement.