Consumer: Prepaid debit cards right for you?

March 29, 2012 3:21:50 PM PDT
In this era of rising bank fees a new type of plastic is gaining ground: Prepaid debit cards.

But are they the right for you?

Prepaid debit cards require no bank account and let you shop online. This time of year they're heavily promoted as a way to get your federal tax refund fast. In addition, prepaid debit cards bear familiar logos like MasterCard and Visa.

Like a regular debit card, you can use them to buy things and get cash at ATMs.

However, after examining the terms and conditions of 16 prepaid debit cards, Consumer Reports says that's where the similarity ends.

"If your prepaid card is lost or stolen or there are errors on your account, you don't have the same legal protections that you do with a traditional debit or credit card. And there can be lots of fees," said Mandy Walker of Consumer reports.

Take the AccountNow Gold Visa prepaid card. Its fees include a monthly charge of $9.95 unless you've loaded $2,500 on the card that month. Using an ATM to withdraw cash costs $2.50. Plus, you'll pay $15.95 if you want to close your account and get a check for the remaining balance.

Although some cards imply they can help improve your credit history, Consumer Reports says they can't.

"These are a type of debit card. So the big three credit agencies don't use any of the activity on them to determine your credit score," Walker said.

TV personality Suze Orman's new prepaid debit card is trying to change that in a pilot program with TransUnion - one of the big three credit agencies. But Consumer Reports says it's uncertain how effective that will be.

Companies that sell prepaid debit cards say they're a good alternative for people who don't have a bank account or don't qualify for a credit card.

But, Consumer Reports says, prepaid debit cards should have the same legal protections as traditional cards, and the fees should be clearly disclosed.