Selecting a Prepaid Credit Card That’s Right For You

Prepaid credit cards are becoming an increasingly important part of many families’ finances.  Reckless use of them, however, can cost card users a lot of money.  In order to avoid as many fees as possible, prospective card users should chose a card that best fits the way it will be used.  Below are some factors to consider when choosing a card.

 

1.  How often will you use the card

            Many prepaid cards contain fees for all sorts of transactions, including purchases, and withdrawing cash from an ATM.  While some cards impose a monthly fee, others waive the monthly fee and instead charge for more types of transactions.  If you plan to use the card frequently, it might be worth paying a monthly fee to obtain a card that imposes fewer fees on common types of transactions.  Alternatively, if you plan to use the card sparingly, paying per transaction might be a better alternative than paying a monthly fee.  Taking some time to think about exactly how you will use the card will help you figure out what types of fees you want to avoid.

 

2.  Do you plan to deposit your paycheck directly onto the card?

            Often, users of prepaid credit cards will deposit their paychecks directly onto their card to make the funds available immediately.  Card companies will sometimes charge for this, but will sometimes waive that fee or allow you to deposit your paycheck at a bank.  If you plan to directly deposit your paycheck onto the card, take the time to find a card that does not charge for this service.  Additionally, even though the card company may not charge you a fee, the service you use to complete the deposit might.  Take a look at what deposit types the card requires you to use, see if they are available in your area, and see how much they charge.  It’s worth it to take the time to find a free or cheap service.

 

3.  Do you plan to make frequent ATM withdrawals?

            ATM withdrawals using prepaid cards can be expensive.  Card companies will usually charge for the transaction, and the ATM owner also usually imposes a fee.  If you plan to use the ATM frequently with your prepaid card, find a card that does not charge for ATM transactions.  Additionally, some cards allow you to use the ATMs at certain banks without paying the owner’s fee.  If you are going to be withdrawing cash frequently, researching this information and choosing a card that allows you to use a local bank can save you a lot of money.

 

4.  Are you buying the card for a child or loved one as an emergency fund?

            This is becoming an increasingly popular use of prepaid cards.  It comes with one major pitfall though.  Many prepaid cards charge something called a dormancy fee.  Dormancy fees are fees that are charged due to inactivity on the card.  If you buy one of these for yourself, or for anyone else, and plan to just let the funds sit around in case of an emergency, make sure the card does not charge a dormancy fee. 

 

Selecting the Right Card

            If you’re careful about selecting a card that fits your usage pattern, you can avoid paying many different types of fees.  Don’t begin your search for a card until you know exactly how you plan to use it.  Once you know that, look for a card that fits your needs.  There are some convenient online tools and articles to help you compare cards, such as:

 

http://www.nerdwallet.com/prepaid/

http://money.usnews.com/money/personal-finance/articles/2012/04/24/the-5-best-and-worst-prepaid-cards

http://money.msn.com/saving-money-tips/post.aspx?post=98b1ca6b-0357-4d22-a4fe-b71c3c9e481b

 

However, don’t rely on these exclusively in your search.  Talk to a representative from the card company and ask specific questions about which types of transactions the company will charge you for.  Finally, read the terms and conditions that go along with the card.  This will be a long, difficult document to read, but it is the contract that ultimately determines what fees you pay.  Use a simple control + F search on your PC to look for terms like “fee,” and “charge” to make the process easier.  Knowing exactly what you will be charged for will help you avoid the expensive fees that can really add up on an unsuspecting card user.

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