Will Prepaid Debit Cards Replace Checking Accounts?


Is the venerable bank checking account on the endangered list? Could be, especially as the rising costs of bank checking accounts batter weary U.S. consumers. Taking its place could be the prepaid debit card, which is growing in popularity these days.

Prepaid debit cards are hardly new, but they may seem that way to a shell-shocked nation looking for creative financial ways to deal with the "new normal." With an estimated 30 million Americans without a bank account, according to the Federal Deposit Insurance Corp., demand for alternative ways to buy goods and services is up.

How high is that demand? The research firm IBIS World pegs the growth of prepaid cards at up to $160 billion for 2009 — with growth rates averaging between 15% and 40% during the past five years.

Prepaid debit cards seem to fit the bill. With a prepaid card, you pay an upfront fee when you buy the card and then use the card like a regular debit card until the money runs out. Then you “reload” and start the process all over again.

That fee you pay varies from provider to provider, but let’s use the MiCash Prepaid Mastercard as a barometer. Here’s a rundown of the charges you’ll run up with the card, according to The New York Times.

  • Activation fee — $9.95
  • ATM fee — $1.75
  • ATM balance inquiry — $1
  • Per purchase fee — 50 cents
  • Monthly maintenance fee — $4
  • Customer service call — $1
  • Inactivity fee (after 60 days of non-use) — $2

While those fees, at first blush, might seem a tad pricey, know that overcharge fees for traditional bank debit cards can be $30 or $35 per transaction. In that context, prepaid card fees don’t seem so offensive.

Aside from the fee issue, prepaid debit cards offer a good safety option for people who can’t open a bank account, and who don’t like carrying cash around. And, if you need to book a hotel room or an airline flight, not having a credit or debit card is a real deal breaker. Prepaid cards can fit the bill there, as well.

On the downside, besides the high fees, a prepaid debit card won’t help you build your credit score — credit scoring agencies don’t use prepaid cards when calculating credit scores. Also, not every hotel or airline accepts prepaid cards. So check first before you try to use a prepaid card to reserve a room or a flight.

All in all, if you don’t have — or don’t want — a bank account, and you hate carrying cash, a prepaid debit card can meet your consumer financial needs quite nicely. Just be prepared for some stiff fees, and know that there are limits on how you can use them.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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