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Plan Well, Retire Well

Saving and investing your money
Box of tools small

Do You Want a Reloadable Debit Card in Your Financial Toolbox?

Imagine you're at a store watching someone pay for their purchase. The total bill is rung-up and the shopper reaches into his wallet and pulls out – what? It could be cash, or a debit card from their local bank, or a credit card, or it could even be a reloadable debit card. Yes, we now have one more way to pay for things! And, like most financial tools, pros and cons exist for using these cards.

A reloadable debit card works like a debit card except that it doesn't require a separate bank or credit union account. In fact, the Consumer Federal Protection Bureau reports that consumers may be using prepaid cards as alternatives to checking accounts. Many consumers first became users of prepaid debit cards when they purchased, or received, a gift card. But the use of prepaid cards has gone way beyond a $25 gift card; many people now receive their paychecks deposited directly to a prepaid card rather than to a checking or savings account.

Once the money is deposited (loaded) to the prepaid card, card owners can withdraw cash at ATMs or from a bank teller as well as make purchases in-store or online. Prepaid cards can be convenient and can be a good option for those people who do not have a financial account.

We can expect to see more people using prepaid debit cards in the future. As of March 1, 2013 all people who receive government benefit payments must receive these payments electronically; no more paper checks will be issued. This includes SSI, Social Security, veteran's benefits, and other federal payments. People who have a checking account can have the check automatically deposited. This is more safe, secure and reliable than receiving a paper check.

However, according to a recent FDIC survey, over 8% of the U.S. population is unbanked. For those people who don't have an account or who don't provide the U.S. Treasury with an account number for direct deposit, federal benefit payments will be deposited each month onto a prepaid debit card known as Direct Express®. Even if this doesn't apply to you, please stop and think if you know an elderly neighbor, relative or friend who this may affect. We need to help people and make sure they're ready for this change. To set-up direct deposit or to enroll for the prepaid debit card, go to or call (800) 333-1795.

The U.S. Treasury negotiated an extremely low-cost fee structure for Direct Express®. Purchases can be made without any fee. One free ATM withdrawal for each benefit payment deposited to the card will be allowed and there are not fees for checking the card balance online or at an ATM. Low fees do exist for additional services.

In contrast to the fee structure for Direct Express®, many other prepaid cards have high fees. Prepaid debit card users may find they're charged for:

  • loading the card with money,
  • checking balances,
  • withdrawing cash,
  • regular monthly service fees, and
  • some even charge when you make a purchase.

Plus, your personal liability if your card is used illegally by someone else also varies. Read the fine print!

Prepaid debit cards are advertised as a good option when traveling or for a young adult to use. These may be good options but definitely understand the fee structure before using a prepaid debit card.

One common misconception about prepaid debit cards is that they help build a person's credit history. This is not true because they are not a form of credit. A secured credit card is a better option for someone trying to build a positive credit history.

A prepaid reloadable debit card is neither good nor bad inherently; it's another tool in our financial toolbox. Consider your options when choosing which tools you want in your financial toolbox.

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