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NerdWallet Study: Average Prepaid Debit Card can Cost Over $300 a Year

by on January 25, 2012

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In a study of 40 popular prepaid debit cards, NerdWallet found that the average card cost nearly $300 a year in basic fees – before considering activation, cancellation, paper statement and other costs. The single greatest charge tended to be the monthly fee, ranging up to $14.95, but $1-2 charges for transactions and ATM use could easily accumulate to over $20 a month.

NerdWallet used conservative estimates to calculate the cards’ monthly cost, and excluded other fees, both avoidable and inescapable. We used a spending profile that actually assumed a lighter usage than that established by Consumers Union, but with updated transaction numbers from Discover’s PULSE survey.

Based on our analysis, the average ongoing cost of a prepaid debit card is:

  • $297.51 a year with no direct deposit
  • $286.18 a year with $1,000 in direct deposits
  • $284.99 a year with $1,500 in direct deposits

This calculation excludes:

  • $8.35 average activation fee, levied by 23 cards
  • $4.67 average inactivity fee, levied by 14 cards
  • Cancellation, card replacement, ATM balance inquiry and decline fees, among others

Based on these numbers, it’s easy to see why prepaid debit is a booming industry. Unfortunately, it’s an industry built on nickel-and-diming unwary consumers.

Prepaid debit cards are often marketed to those least able to bear their high costs: students, low-income families, and immigrants, and as the industry explodes, everything from government benefits to tax refunds are offered on prepaid cards. But even the cheapest cards in our database are more expensive than many checking accounts.

How do the most popular cards fare?

Card Name Annual Cost
American Express Bluebird $72.00
Western Union Prepaid Debit Card $141.60
Walmart MoneyCard
(with $1,000+ monthly load)		 $156.00
($120.00)
American Express PASS for Teens $166.80
The Approved Card from Suze Orman
(with $20+ direct deposit)		 $168.00
($120.00)
NetSpend Prepaid (FeeAdvantage)
(with $500+ direct deposit)		 $274.20
($214.80)
Prepaid RushCard (Pay As You Go) $309.60
Prepaid RushCard (Pay Monthly) $382.20
NetSpend Prepaid (Pay As You Go) $502.80

NerdWallet study based on the in-network ATM withdrawal, online bill payment, per-transaction, retail reload and monthly fees. Assumptions: 2 ATM withdrawals, cash reloads, and online bill payments; 10 PIN and 7 signature transactions per month; excludes activation, cancellation and myriad other fees.

The best prepaid options (they’re still not as good as checking)

The winner in our prepaid card list, is the new American Express Bluebird, which charges no monthly or per-transaction fees and allows for direct deposit. The only charge is for ATM withdrawals ($2 apiece) and cash reloads ($1, compared to the average $4.49). To be fair, 2 ATM withdrawals and cash reloads and you’re out $6 a month. But that’s a lot better than most other cards. The one downside is the ATM withdrawal limit: you’re capped at $200 a week, while most cards draw the line at $500 a day. But for its low cash reload fees and simple fee structure, we’d name the Bluebird as both rookie of the year and best prepaid debit card out there.

A couple of prepaid cards are also offering linked savings accounts, some with interest and some without. The best of the lot by far is the Mango Prepaid, which gives 6% APY on the first $5k with direct deposit and 2% without, and 0.1% on the balance above $5k. The NetSpend cards also offer a promotional interest rate of 5% APY. The Approved Card and RushCards also include zero-interest savings accounts.

But let’s talk checking. Many credit unions offer absolutely positively no-strings-attached free checking, even reimbursing ATM fees and offering interest or rewards. Fred Becker, President and CEO of industry association NAFCU, says:

In these challenging economic times, credit unions, which help promote access to financial services in Main Street communities across the country, are all the more valuable, most especially to those underserved by larger Wall Street financial institutions. Many credit unions offer debit cards at a lower cost than other financial institutions. You can open an account for as little as $5 in some credit unions.

Online banks, too, give rewards on their free checking accounts. We have a whole list of debit cards and checking accounts right here. Yes, Bank of America and Chase are charging for their accounts, but they’re hardly the only players out there. Free checking is dead. Long live free checking.

Some people end up using prepaid cards because they’ve been blacklisted on ChexSystems. That’s a legitimate concern – over 80% of banks and credit unions use it – but many financial institutions use other methods of verification. ING, for example, pulls your credit report rather than relying specifically on ChexSystems, while many, many credit unions offer “second chance” checking accounts.

NerdWallet’s Prepaid Debit Wall of Shame

While our study discovered a few prepaid debit cards that actually deliver good value, it revealed a number whose high hidden fees belie their marketing campaigns.

Suze Orman: Leave the flip-flopping to the politicians.

Suze Orman has always spoken out against prepaid debit cards, which are laden with fees, and more importantly, don’t affect your credit score. She’s changed her tune now that she’s issuing her own. She’s paired up with TransUnion to anonymously aggregate data to investigate whether debit card use can sufficiently predict future behavior such that it should impact credit scores blah blah blah it won’t change anything. TransUnion is but one of three credit reporting agencies, and it’s Fair Isaac, not TransUnion, that issues your credit score. Her Oprah advertorial seems to recognize this tenuous logic:

We’re hopeful that [the arrangement] will reveal the creditworthiness of cardholders. If we’re right, then in the future, debit card users may be able to build a FICO score without having to rely on credit cards.

Hopeful, if, future, may…if wishes were horses, Suze. If wishes were horses. And here’s something we’re not okay with: she advertises free ATM withdrawals – but only if you use direct deposit. Otherwise – and she doesn’t say this in O – it’s $2 per withdrawal.

She says that the Approved Card is low-cost. Again, from O:

Fees on some prepaid cards can add up to $15 or more each month, but Approved cardholders pay as little as $3 each month.

Okay, yes, but there’s something inherently misleading in comparing “as much as” to “as little as.” The truth is, if you do just two cash reloads and two ATM withdrawals without direct deposit, Suze Orman’s card costs $14 a month.

Stick to your original line, Suze: if you want to rebuild credit, get a secured credit card and leave prepaid debit behind.

Russell Simmons: It’s not because you’re hip hop.

Update January 30th: UniRush announced the day after this study’s release that they’d be changing the RushCards’ fee structure, eliminating its bill pay enrollment, individual bill payment, plan change and replacement card fees, beginning “as early as February 2012.” This lowers our estimate of the RushCards’ annual cost by all of $24 – and it hasn’t been implemented yet.

Russell Simmons, whose company UniRush issues the notorious RushCards, wrote an editorial on January 19th entitled, “An Open Letter to the Financial Press: Is it Because I’m Hip Hop?” He expressed his dismay that he’s labeled as simply a “celebrity endorser,” instead of getting full credit for creating the RushCards. Among the letter’s gems:

Just like [Richard] Branson and [Mark] Zuckerberg, I created products that garner strong customer loyalty and evoke genuine emotion.

I strive to be the iPhone of this business – simply the best, at a price that our customers believe is fair.

Chase and others are raising fees and imposing monthly minimums… [but] the average RushCard customer, if fortunate enough to live near a bank like Chase, has far less than $5,000 to keep in their account every month.

All right, Russell. You want to see how your RushCards stack up against Chase? Let’s see it:

Pay Monthly RushCard Pay-as-You-Go RushCard Chase Total Checking
$9.95 monthly fee
$1 per signature transaction
$1.95 per ATM withdrawal
$0.50 per balance inquiry		 $0 monthly fee
$1 per PIN transaction
$1 per signature transaction
$1.95 per ATM withdrawal
$0.50 per balance inquiry		 $10 monthly fee
…and that’s it

Russell, if I were you, I’d be complaining about the press coverage of the RushCard as well. But I’d be doing my best to dissociate myself from a product that can best be described as predatory, not trying to compare that product to Facebook.

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  • http://besttravelcreditcard.us/ Ron Thompson

    Well it seems banks are still really desperate. With loan demand at [somewhat] depressed levels it seems more profitable to nickle and dime people to death then to try and offer then the more traditional loans.

  • Rob Rosenblatt

    Your analysis is seriously flawed and I certainly wish you’d been a bit more diligent in your fact-checking and your methodology. If you had done this, you’d know that our Pay As You Go usage fees are capped at $10/month. That said, I’m happy to help correct your math after we finish announcing our new fee plan tomorrow. I’d also suggest that you re-read Russell’s letter — and then find me a bank or prepaid card company that offers the breadth of services and commitment to providing solutions for the chronically underserved that RushCard does. Your cost-to-serve assumption assumes the big banks really want to serve my customers — I challenge you to prove it!

    Rob Rosenblatt
    CEO, RushCard
    also, an ex-banker

    • http://www.nerdwallet.com/ NerdWallet

      Hi Rob,

      My apologies – capping the usage fees at $10 each month would reduce the annual cost (based on our assumptions, of course) to $309.60. We had erroneously assumed that PIN transactions were capped at $10, not transaction fees in total. However, that still puts the monthly cost of the Pay-As-You-Go RushCard at $32.80 per month, more than even Chase’s higher-tier checking accounts and well more than online checking accounts such as PerkStreet Financial, ING Direct and Capital One. It is true that the Capital One has a $500 opening deposit, but ING has no minimum. 

      I’d be happy to look over the new fee schedule when it’s released tomorrow, but as your fee structure stands today (January 25th, 2012), we believe that our fee schedule of the RushCards is up-to-date. If we’re mistaken, please let me know at anisha@nerdwallet.com. 

      Finally, in regards to commitment and services, from your website it seems that the main benefits that the RushCard delivers are:

      - Avoiding NSF (overdraft) fees
      - Avoiding going into debt
      - The RushGoals account, which from your website appears to be a non-interest-bearing savings account (correct me if I’m wrong)
      - Text/email alerts
      - Free customer service calls
      - Money management tools

      Let’s take those point-by-point. Listing all the credit unions that meet and surpass your criteria would take days, so let’s stick with ING (a for-profit  account) and Consumers Credit Union (available to everyone, and where I personally bank). Both have no minimum deposit to open, no minimum balance requirements and no monthly fees.

      NSF fees: Per Regulation E, a bank cannot charge an overdraft fee unless a customer opts in, fully aware of the fees he/she may incur. Avoiding overdraft fees is as simple as declining to overdraw the account. But in the case of ING and consumers, ING doesn’t charge an overdraft fee at all. Granted, Consumers does charge a $30 overdraft fee, but I’d like to reiterate that you have to opt in.

      Debt: Well, that’s pretty standard across all prepaid and traditional debit cards – they don’t extend a line of credit, so you can’t go into debt.

      RushGoals: The Mango prepaid card offers a linked savings account with a 2-6% APY on the first $5,000 and 0.1% thereafter. But more generally, if you open a checking account with a credit union, you’ll also open a savings account that in all likelihood pays interest. 
      ING’s Electric Orange checking earns interest on the balance – 0.2-0.9% APY – and the Orange Savings account earns 0.8% APY. Consumers pays out a whopping 4.09% APY on the checking account balance. When you open the account, you also get a Regular Shares account, which pays 0.05% APY. Not that much, granted, but again, the checking account pays out over 4% APY on the first $10k. 

      Text and email alerts: This has now become more or less standard. Both ING and Consumers offer mobile and email alerts, and Consumers even has a smartphone app.

      Free customer service calls: Consumers offers this as well, as does ING. In fact, only rarely (and mostly with prepaid debit cards) have I seen an institution charge for customer service.

      Money management tools: Consumers offers a financial fitness program called Balance, while ING has a portion of its website dedicated to financial literacy. And most credit unions, in general, offer kick-butt financial literacy programs, from in-person counseling to multilingual classes and more. They really go the extra mile with financial literacy: for example, check out our picks for the most community-oriented credit unions – each of the stories in there that show true commitment to serving the underserved.

      So it seems that ING and Consumers (which, again, are only two of many checking accounts) provide everything that the RushCard does, with far, far fewer fees. And to address your point generally, that many institutions don’t serve the underserved, I’d like to point out:

      - Self-Help Credit Union, which is piloting a micro-branch in San Jose, CA to better serve the area’s low-income, immigrant population. They made themselves accessible to those used to using check cashing services, etc, with the hope of transitioning them into the traditional banking system.

      - Latino Community Credit Union, which offers its services in both English and Spanish and reaches out to the disproportionately unbanked population in its membership area of North Carolina. They engage in community outreach, offer free financial counseling and provide financial education to their members.

      - Community development credit unions in general. Their mission is to serve low-income, at-risk populations, and they go above and beyond that mission. 

      We never claimed that big banks are looking to help their customers (though I’d argue, still, that their checking accounts can be far cheaper than prepaid debit cards on the whole), but as shown by ING’s example, free and fair checking is alive and well. And when it comes to serving the underserved and giving back to the community, there’s no match for a credit union’s commitment. 

  • http://twitter.com/johnulzheimer John Ulzheimer

    Guess how much I paid last year for my checking, savings, credit card, and money market accounts with my credit union (without direct deposit)…$0. THAT’S what we should be teaching people to do…getting them as ready as possible to do business with mainstream lenders.

  • Guest

    Should be easy to see who is right – go sign up for each card, do the actual transaction sets, and see what the fees actually are.

  • http://www.bretton-woods.com/ Michael Flores

    I have consulted with financial institutions for over 30 years and have published studies on payments and consumer credit issues since 2001.

    My last study comparing prepaid cards to basic checking accounts to using cash calculates that General Purpose Reloadable Card users pay from $76 to $261 annually if they used direct deposit and $184 to $380 annually without direct deposit. This compares to a cost for a basic checking account from $218 to $314 annually. See http://bretton-woods.com/media/51f57d9869e66aa1ffff8159ffffd502.pdf. An update to this report will be available in March and posted on our website.

    We used the Consumers Union transaction profile. I believe that the monthly 17 POS transactions used in your analysis is high. Consumers Union uses the following transaction pattern:
    2 ATM Transactions
    1 ATM Declined Withdrawal
    1 Bill Payment
    8 Point of Sale Transactions
    3 Call Center Inquiries
    2 Deposits/Loads

    Referencing the comment on overdrafts, Regulation E does not require the consumer to opt-in for check overdrafts. With a few exceptions, most checking account products issue checks to the customer. Additionally, this consumer segment is more likely to present transactions against insufficient funds. Even if the bank does not pay the item into overdraft, it charges the same fee ($35) to return the check. The customer then could be charged a merchant NSF fee it the check is payable to a merchant in addition to the merchant re-depositing the check that may bounce again. In short, the consumer can pay 300% higher fees with a bounced check rather than an overdraft.

    Finally, the comment that free checking is alive and well does apply to many community banks. However, the top ten banks in the United States represent 46% of the total deposits and these banks have eliminated free checking. That is, the banks where most people conduct business do not offer free checking.

    In conclusion, I believe a more balanced analysis shows that prepaid cards fill a critical need at a reasonable cost for consumers that either do not want to use a traditional checking account (to ovoid NSF/Overdraft fees) or for those consumers that cannot qualify for a checking account because of previous problems. These consumers are on the ChexSystems or TeleCheck databases which most banks use to determine whether to open as account.

    Michael Flores
    CEO
    Bretton Woods, Inc.

    • http://www.nerdwallet.com/ NerdWallet

      Hi Michael,

      Thanks for your thoughtful response. You definitely bring up some good points, and I’m looking forward to reading your study in more detail over the next few days. My thoughts right off the bat:

      Could you direct me to the Consumers Union profile that you used? The Consumers Union study “Adding It All Up: How Prepaid Card Fees Compare to Checking Account Fees,” published in April 2011, uses the following monthly spending profile:

      - Account opening costs (which we actually excluded)
      - 2 online and 1 check or money order bill payments
      - 8 POS purchases
      - 3 ATM withdrawals
      - 2 balance inquiries
      - 2 deposits/loads

      We got our POS usage data from the PULSE 2010 Debit Issuer Study – the cited source of Consumer Reports’ usage data as well, though they referenced the PULSE 2009 study.

      Regarding overdrafts, you’re right that Reg. E doesn’t protect against bounced check fees, and those can be quite high. But I’d argue that the
      unbanked – those whom the prepaid debit card market targets, and whom we
      argue would benefit from joining the traditional banking system – would be
      less likely to incur bounced check fees, for the simple reason that they
      may not write as many checks.

      According to an FDIC study, a plurality of the unbanked said that the
      reason they avoided traditional checking accounts was that they didn’t
      write enough checks to make it worthwhile. I recognize that this is
      conjecture, not data, and if you have solid numbers I’d love to take a look.

      In any case, I look forward to reading Bretton Woods’ analysis and
      discussing this with you further. Thanks for leaving your comments!

      Consumers Union study: http://defendyourdollars.org/pdf/Adding-It-All-Up.pdf
      PULSE study:
      https://www.pulsenetwork.com/public/about/pulse-news/press-releases/2010/debit-use.html
      FDIC study: http://www.fdic.gov/householdsurvey/survey_instrument.pdf

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  • analyzethis

    Add the PNC SmartAccess card, The US Bank Convenient Cash card, the Regions Bank Now card, the Compass BBVA SafeSpend card, along with better payroll cards and please take into account that a card like Green Dot can be used surcharge free with very little effort.

    By the end of the year most major banks will have good prepaid options for about $5 a month. The same as any bank account except no checks and signature transactions hold the amount as pending till the transactions clears or reverts meaning it’s not possible to overdraft. When this becomes ubiquitous prepaid cards that have cash load fees and ATM usage fees will go out of business. That’s why both Green Dot and Plastyk are working on remote check deposit functions to lower that cost.

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