You may think prepaid debit cards are a bargain but realize that all the cards in a recent Bankrate.com survey carried fees -- some of them pricey.
"If you are going to chose a prepaid card, you need to shop around to find the one with lowest costs," said Greg McBride, senior financial analyst at Bankrate.com that is based in north Palm Beach County.
The study found the range between prepaid cards could be more than $20 a month for a consumer making 10 purchases per month, four bill payments, one customer service call, one out-of-network ATM withdrawal and a balance inquiry at the ATM.
Many parents bought a prepaid card for their students going off to college but they may save more money by opening a checking account, he said.
Indeed, for most consumers, "a low-cost or free checking account remains the better option," said McBride.
“Consumers with a tendency to overdraw their checking accounts or those unable to obtain checking accounts may find a prepaid card to be a suitable alternative, but it is important to shop around to find the card that will produce the lowest fees for the card holder’s particular financial tendencies,” McBride added.
Two-thirds of the cards that Bankrate surveyed (12 of 18) have a monthly fee ranging from $2.50 to $9.95. Four of these will waive the fee with direct deposit or by loading $1,000-$2,500 onto the card.
Seven of the 18 prepaid cards surveyed had no activation fee, but 11 cards had one, that ranged from $3 to $14.95. Two of the cards do not charge an activation fee if issued online.
Nearly two thirds of the prepaid cards charge for using the issuer’s own ATMs -- from $1.50 to $2.50.
All 18 cards charge a fee for withdrawals from another institution’s ATM, though two cards will permit one free withdrawal a month.
McBride said one hidden cost is that 14 or the 18 prepaid cards surveyed charge a balance inquiry fee depending on the ATM used -- as much as $2.50.
There may also be fees for not using the card in three to 12 months while a third of the prepaid debit cards charge for at least some declined transactions.
And a few may charge if you call into the issuer of the prepaid card for a cash transfer.
Bankrate.com conducted the survey from March 19 to 23, 2012 and included 10 issuers and 18 widely issued prepaid debit cards. Click here to view the full survey.
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