Prepaid cards come in handy for people who find it hard to balance their budget or just don’t want to open a bank account. They won’t let you accumulate debt and you can reload them whenever it’s convenient. The downside, however, is that they are less beneficial in terms of security, service, and relationships with creditors. Take a look at our list of five things you should know before getting a prepaid card.
1. Your Funds Are not FDIC protected. If you have a bank account attached to your card, you can rest assured that your money is FDIC-insured in case your bank goes broke. When it comes to prepaid cards, this insurance doesn’t always apply. Even if the website of your card issuer claims FDIC protection, it’s not always clear whether you will be able to retrieve the full amount or just a portion of your money. But if your prepaid card provider doesn’t have such insurance, you’re at risk of losing all your money.
2. You Share Your Personal Data. To receive a prepaid card, you are required to submit a thick stack of documents: an ID to identify your name and birthdate; something such as utility bill that has your address on, social security number, your phone number, as well as details about your bank account if you are going to use it to reload your card. Basically, you need to provide the same information and verify it as if you were getting a credit card. The only major difference is that you don’t have to get through a credit check. Bank establishments ensure that your sensitive information doesn’t end up in the wrong hands, but whether non-bank card issuers are able to guarantee the same level of security is a different matter.
3. Customer Service May Be Lacking. Not all prepaid cards come with good customer service. Large and reputable providers normally include support, but you never know what you will get when opting for a card from a run-of-the-mill issuer. The quality of customer service significantly varies throughout the industry – some companies provide live support featuring real people, while other issuers have only chatbots or automated emails. Moreover, you may discover that your provider charges you for dealing with your issues. To sum it up, before getting a prepaid card, you should inquire about how and who will be sorting out your requests.
4. Beware of Charges. A prepaid card is not for free and you’ll have to pay for the privilege of using one. Normally, the charges include a monthly service fee, reload fees, and ATM fees. Unfortunately, this is not a full list of expenses that come with a prepaid card. What’s even worse is that some issuers don’t disclose all their fees, so at some point it may become a surprise to find out how much a prepaid card actually costs. The hidden expenses may include setup, transaction, declined transaction, paper statement fees, inactivity charges, and international usage charges. All in all, an average prepaid card is more than twice as expensive in terms of fees as a regular credit card.
5. They Don’t Build Credit History. A prepaid card might be your only option if you have previously run into debt and damaged your credit history. On the other hand, prepaid cards are not the best solution to redeem your credit score. Some issuers claim that they cooperate with credit reporting agencies or score trackers, but in fact they are not able to affect your credit rating in any way. If you’ve never owned a credit card before, a prepaid card won’t help to build your credit history either.
Prepaid cards have lots of helpful benefits, but those are balanced with a number of potentially damaging drawbacks. If you don’t want a prepaid card to be a disappointment, always make sure to do your research and weigh all the pros and cons before signing up for one.