Weighing the Benefits of Prepaid Debit Cards

Americans spent about $37 billion on prepaid debit cards in 2013, double the amount from 2009, according to a report by Bankrate, a publisher that reports financial trends and statistics.¹

A prepaid debit card is established when an individual provides cash to a financial institution in exchange for a card that can be used like any debit card or credit card, except it is limited to purchases in an amount not to exceed the card’s cash balance. When the balance runs low, or is exhausted, the card can be reloaded with additional cash.There are reasons why you might consider using a prepaid debit card, including:

  • The conveniences of widespread acceptance and not having to carrying cash. For individuals with poor credit, who may be unable to get a credit card, prepaid debit cards may provide them these advantages.
  • For individuals who have trouble managing their spending, prepaid debit cards can act as a restraint on poor habits.
  • An alternative to credit cards for college students, they may be able to protect parents from excessive spending, while teaching children important budgeting lessons.
  • Potential protection against the loss of cash when traveling.
  • In a world of data theft, prepaid debit cards do not house personal data such as your social security number or bank account information, shielding that data in the event of theft.

They do come with drawbacks, such as:

    • They do not provide any advance of credit, like a credit card. So if you have an emergency expense that exceeds your prepaid debit card balance, the debit card will be of limited use.
    • Prepaid debit cards may come with considerable fees, including account opening fees, transaction fees, and monthly charges. Depending upon the balance, they can represent a high percentage of your cash value.
    • You will not earn reward points or rebates, like you may with a credit card.

If you are considering a prepaid debit card, be sure to comparison shop. The fees can vary widely, so look for an appropriate card. And keep yourself informed about your running balance so you don’t find yourself short on money.

  1. Bankrate.com, August 2014

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG, LLC, to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2015 Faulkner Media Group.

This article was written for information purposes only and its content should not be construed by any consumer and/or prospective client as rebel Financial’s solicitation to affect, or attempt to affect transactions in securities, or the rendering of personalized investment advice for compensation. No client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from rebel Financial, or from any other investment professional. See our disclosures page for more information.

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