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7 Ways to Minimize Prepaid Card Fees

Reloadable debit cards can have hidden costs

6 ways to minimize fees on prepaid debit cards

Avoid many prepaid debit card fees by reading the fine print and knowing exactly which actions will incur charges. — Photo by Elaine Thompson/AP

To provide greater protection to consumers, the Consumer Financial Protection Bureau last year issued new disclosure rulings on reloadable prepaid debit cards. At issue was the potential for hidden and confusing fees, and what consumer advocates call a lack of basic protections.

See also: 6 places to never use a debit card

From 2009 to 2012, the number of reloadable cards in use in the United States doubled, from 3.4 million to 7 million. And the growth continues, with a prediction that by the end of 2014, U.S. consumers will have $167 billion loaded on these cards.

Why the growing affinity for these cards? One reason is that banks have made a big push into the market for these cards, in part because they are less regulated than credit and debit cards.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 put restrictions on gift card fees, but did not address fees for reloadable cards. Similarly, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 did not regulate these cards.

Prepaid card providers most often market to people who don't have credit cards or checking accounts — often low-income people and students. The cards are promoted as a way to manage money without incurring debt and surprise overdraft fees. However, consumer advocates contend that many issuing companies do not provide clear and complete information about their cards' usage and maintenance fees.

Keeping Fees Low

Even with better regulation now in place, it's up to you to compare fees and read the fine print closely if you decide to get a reloadable prepaid debit card. Here are seven steps toward getting the best deal.

1. Minimize initial purchase or setup fees. Some cards are free to acquire, but some have an initial purchase price or activation fee. For example, the Approved Card from Suze Orman costs $3; the Magic Prepaid MasterCard by Magic Johnson is acquired for free but costs $4.95 to set up; the AARP Foundation Prepaid MasterCard brought to you by Green Dot is free if you obtain it online but can cost $4.95 in retail stores if there is no special offer.

2. Take action to limit monthly fees. The Approved Card from Suze Orman has a $3 monthly fee, the Magic Card has a $4.95 monthly fee, and the AARP Foundation Prepaid MasterCard charges $5.95 per month. There may be ways to avoid maintenance fees. The AARP Foundation Prepaid MasterCard will waive the monthly fee if you make a $250 direct deposit, post 30 transactions or load $1,000 onto the card during the month. The Approved Card from Suze Orman will give you the first month free, but after that it does not offer waivers. The Magic Card will not waive the monthly fee.

Next: How to reload your prepaid card, use ATMs wisely. »

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