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Prepaid Cards: Convenient but Costly

See fine print so fees are no surprise

En español | Get set for a major marketing push for prepaid charge cards. With new federal rules limiting fees on credit and debit cards, major banks are widely expected to expand their business to include the less-regulated cards that require you to pay in advance.

Prepaid cards are used mainly by people who are low on money, have no bank account and may not qualify for a credit card. Card holders are able to buy goods and services up to the reloadable prepaid value.

Such cards are increasingly offered as standard merchandise in many supermarkets and drugstores. They are convenient and they discourage extravagant purchases. But they often come loaded with fees — a surprise unless you read the fine print.

Consumers Union recently reviewed 19 prepaid cards and catalogued the ways the issuers nibble away at your money with fees.

Most of the 19 prepaid cards start off by charging you a fee of anywhere from $3 to $39.95 just to activate the card. Sixteen of the cards charge monthly fees of $2.95 to $9.95.

All of them charge ($1 to $2.50) for each cash withdrawal from ATM machines in the United States, and the fees are higher for withdrawals abroad. Want to check your balance at an ATM? Expect to pay 45 cents to $1. And if you'd like a record of your transactions, a paper statement could set you back $1 to $5.95.

The list goes on.

Though most issuers provide free customer service, one charges $1 a minute; another docks you $3.95 per call. Almost half of the cards impose inactivity or dormancy fees if you don't use them for certain periods of time, usually 90 days. And some cards may hit you with overdraft fees if you spend more than the amount left on your card.

If all this doesn't get your attention, keep in mind that prepaid cards are not covered by the mandatory federal protections that apply to credit or debit cards linked to your bank account.

If your credit card is lost or stolen, your liability is limited to $50. If your bank debit card goes missing, you can't be out more than $50 if you report the loss within two business days, or $500 if you report within 60 days.

But your prepaid card may only have protections that the issuer offers voluntarily. And these may change at any time.

Joan Rattner Heilman writes about good deals and where to find them.

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