Get Your Tax Refund on a Prepaid Debit Card


NEW YORK (MainStreet) – The Treasury Department launched a pilot program Thursday that would allow some Americans to receive their tax refund on a prepaid debit card in lieu of a check.

Next week the department will mail letters to 600,000 low- and moderate-income Americans inviting them to participate in the program by activating a MyAccount Visa Debit Card. Those that choose to activate the card can then have their tax refund deposited directly on the card instead of receiving a physical check in the mail, and the card can then be used like any other prepaid debit card. A Treasury spokesperson told MainStreet that the 600,000 chosen to participate in the pilot were selected by focusing on Americans who made less than $35,000 in 2009 and who did not opt to have their refund check directly deposited last year.

The initiative, which was announced in September, is aimed at the approximately 35 million “unbanked” Americans who do not have an active bank account. Rather than being forced to pay a fee to cash their refund check, participants can receive the full refund amount on the card.

While that will obviously allow low-income Americans to keep more of their refunds, prepaid debit cards are not without their problems. Some, like the now-infamous Kardashian Kard, have raised controversy for their exorbitant fees.

So how does the MyAccount card stack up?

The answer to that question is complicated by the fact that those selected to participate in the program will be offered, at random, one of four options. One card has no monthly fees and a linked savings account (with a .25% APY and no minimum balance); the second also has no monthly fees, but does not have a linked account; the third has a $4.95 monthly fee and the linked account; and the fourth has a $4.95 monthly fee but no linked account. By considering the sign-up rates of the four cards, the Treasury can gauge the popularity of the savings account and see how prohibitive the monthly fee is for low-income taxpayers.

Still, even those who aren’t lucky enough to receive one of the fee-free cards are getting a prepaid card that’s much more fee-friendly than others on the market, says founder and CEO Tim Chen. “The card has a very reasonable fee structure, as far as reloadable prepaid debit cards go,” says Chen, pointing to the lack of activation fee and the free use of 15,000 in-network ATMs. And the $4.95 monthly fee is well below many of the prepaid cards tracked on NerdWallet, some of which charge annual fees that are upwards of $140.

But even the best prepaid card still doesn’t stack up to a good checking account, especially if you find one of the few major banks that still offer free checking. “There are many reasons why it's better to take that refund money, head to your local bank or credit union, and open a checking account,” says Chen. “It is highly unlikely that someone would end up spending more in fees on a checking account than on a prepaid debit card.”

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