What are the benefits?
For the unbanked and underbanked, reloadable prepaid debit cards can make it possible to avoid the high fees mentioned above. Other benefits can include:
- They provide more safety because you don't have to carry cash
- You get immediate access to money with direct deposit
- It's more difficult to spend more than you have
- They encourage saving by allowing you to transfer funds from a card to a related savings account
Some cards even share payment history with the credit agencies, allowing the owner to establish creditworthiness.
What are the drawbacks?
Many cards come with "hidden" fees — for activating the card, adding money, checking your balance and more. Plus there might be a monthly service fee. Be sure to read the fine print and ask about all fees that come with the card.
Other drawbacks can include:
- Some card accounts are not FDIC-insured
- Some cards do not help build creditworthiness
- Protection for the owner from loss, fraud or theft may not be required by law
How to choose a prepaid debit card
There are many cards available, so compare the choices before selecting one. These steps can help:
- Compare the features to your needs: Do you need to receive federal or state benefits on the card? Do you want a savings account with the card? How about ATM access? Make sure the card has what you want.
- Compare the fees: How often would you use the card? Would the way you use the card incur fees? Is there a minimum monthly deposit required to waive the monthly fee, and if so, can you meet the requirement?
- Look for FDIC insurance: Find out if the debit card account is covered by the FDIC. If it is, and you are named as the cardholder, your money is protected for up to $250,000 if the bank holding the money for the card goes under.
You can compare cards by reading the fine print, or visiting Prepaid101.com, a card-industry site, or NerdWallet's new comparison tool.
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