A traditional debit card, as you know, is a card that draws down the balance in your checking account.
A prepaid debit card, unlike a traditional debit card, is a card onto which you load a limited amount of money — anywhere from $10 to $1,000 — and then spend that down over time. It’s not linked to your checking account. It’s popular among people who are security-conscious — after all, when you use a traditional debit card, your liability is potentially unlimited. It’s also popular among children and teenagers whose parents want them to have practice using a swipe card, without the potential for going overboard with spending.
1. Purchase Fee – Let’s start at the beginning: You might be on the hook for paying a one-time charge to activate the pre-paid card. Not all pre-paid debit cards carry activation fees, but many do. The KLS RushCard and the Baby Phat card charged a whopping $14.95. READYdebit charges $9.95. Avoid this fee by selecting a card without an activation fee. Many cards sold online, for example, waive this fee.
2. Point-of-Sale Fee – The fee charged every time you make a purchase. NetSpend Pay As You Go and Silver AchiveCard from MasterCard both charge $2 for every transaction in which you enter your PIN. RushCard Pay As You Go charges $1 per transaction, regardless of whether you enter your PIN or sign the receipt. This has the potential to add up to hundreds of dollars much faster than you might expect, so dodging cards with this fee is especially critical.
3. Customer Service Fee – You’re charged this fee each time you speak to a customer service representative. Most cards allow you one or two free calls a month. READYdebit Control card and Plastyc Upside Classic card both charge $2 per call regardless of whether it’s your first call or your hundredth. If something goes wrong and you end up with unauthorized charges on your account, prepare to spend a small fortune trying to get it fixed. Avoid this fee by purchasing a card that allows for free customer service calls.
4. Inactivity Fee – You may get hit with an “inactivity fee” for not using your card. The amount varies, as does the length of time required to rack up this fee. Most cards start charging at 90 days: Emerald Card charges $2.50, Americas Card Visa charges $3, and NetSpend Pay As You Go charges the highest at $5.95 per month. Some cards, like the The Wells Fargo Stagecoach, won’t charge a fee until you’ve reached 180 days of inactivity. Not all cards charge this fee, and some just close the account after a few months of $0 balance.
5. ATM Fee – This is the charge for withdrawing money from an out-of-network ATM. Both pre-paid and traditional debit cards charge ATM fees, which has become nearly unavoidable. The fee ranges from $1.25 to $2.75 per withdrawal, depending on the card and the ATM. Since it’s almost impossible to find a card that doesn’t charge this fee, avoid it by using authorized ATM’s. (The Charles Schwab traditional debit card reimburses customers for ATM fees.)
6. Monthly Fee – Some prepaid cards charge a fee to manage your account every month. It’s similar to the monthly checking account fee that’s charged by many banks around the country. MoneyGram AccountNow and AchieveCard Visa both charge $9.95 per month. READYdebit Control charges $3.95. Many cards let you waive this fee if you load a certain amount of money on the card each month.
7. Declined Transaction Fee – You may be charged an insufficient funds fee (the most ironic fee of all). This fee ranges from 25 cents to $1.95, and may apply to both declined ATM withdrawal attempts as well as declined purchases. Avoid it by checking your balance regularly.