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The AmEx Prepaid Debit Card’s Secret

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We wrote last week about American Express’ new prepaid debit card, which is being billed as a low-fee, easy-to-understand alternative to the cluttered prepaid debit market. We agreed, to an extent: most prepaid cards charge for everything under the sun, including withdrawals, purchases, and balance inquiries. We even compared it favorably to some checking accounts. But then we found a deal-breaker in the terms.

Outside of ATM fees, the American Express card has only one fee to worry about, and that fee renders the card essentially irrelevant: the cost of reloading with cash. If you want to reload through an AmEx credit card or through a checking account, there’s no charge. Otherwise, though, you need to buy a MoneyPak from Green Dot, which costs $4.95.

This little caveat is what kills the AmEx prepaid debit card, since no one with an AmEx credit card or a checking account has any use for a prepaid debit card.

The card for the unbanked requires a checking account

The primary reason to get a prepaid debit card is to avoid having a checking account to begin with, whether because you can’t make the minimum balance requirements to avoid paying fees, or because you simply don’t want to keep your cash with a bank. In fact, prepaid debit is marketed as a “safe” alternative to credit and cash; there’s no possibility of overdrawing or going into debt, and it’s less cumbersome than bills and coins. But if you need a checking account to reload your prepaid card, then you already have a debit card that isn’t charging you to reload it.

This reveals the biggest hole in AmEx’s prepaid strategy — their cards don’t have access to direct deposit. Most prepaid debit cards allow you to get your paychecks deposited onto the cards at no charge. By using direct deposit, you can avoid having to pay any reloading fees, and you can avoid having to pay more fees to get cash from shady check-cashing locations. But American Express doesn’t offer this crucial feature yet.

If the AmEx card is supposed to be a “fee-free” alternative for the unbanked, it falls short of its goal. Anyone with a bank credit card or checking account – who can reload the AmEx prepaid for free – has no need for a prepaid card. And anyone who doesn’t will have to pay Green Dot $4.95 every time they reload the card. If you get paid bi-monthly, that’s $9.90 each month out of pocket already.

First among prepaids no more

Unfortunately, we’ll have to revise our estimation of the AmEx prepaid debit cards. A customer service rep told us that AmEx is working on setting up a direct deposit system, which would allow users to reload for free, but for the moment, the only way to avoid opening a checking account is to pay Green Dot $4.95 per reload.

Here’s a hypothetical breakdown of the cost of the AmEx prepaid card, the popular Walmart MoneyCard, and the RushCard, which is currently under investigation by Florida’s attorney general. We assume that the user withdraws money from an ATM twice a month; loads the card with $200 twice a month via direct deposit, for a total of $400; and avoids all other fees.

Card Name ATM Fees (2x) Reloading Fees (2x) Monthly Fees Cost per Month
AmEx Prepaid $2 $9.90 $0 $11.90
PinkDiamond RushCard $0 $0 $9.95 $9.95
Walmart MoneyCard $4 $0 $3 $7

*There is $4.95 monthly fee incurred for loading less than $500 a month.

  • Susan Rapp

    I wonder if the new AMEX Serve card will have the same issues? I have the original AMEX pre-paid card and I have NEVER had so many issues. 4 out of 5 times you try to use the card, it will be declined for some reason or another, usually security. They charge you $1 EVERY time you want to purchase something online. I had a merchant decline my sale because my zip code was wrong. You can NEVER change your zip code on your profile and if you call, they can not help you. The merchant did NOT charge me, but AMEX kept my $350 funds on hold for 10 days!!! On hold for a purchase I never made. BEWARE of any AMEX pre-paid card. I have never used a pre-paid card and I have never left a negative review before. So frustrating!!

  • Lialika Fara Frika

    I am using the Amex prepaid card for 4 years now and I honestly, closed all my checking accounts since I have this card.
    One time I had an issue with this card and if I remember correctly, the whole Amex network has some issues at the time, otherwise I am loving it.
    I get my direct deposit from my job directly onto that card and it’s always accurate and yes, ATM fees are just like any other banks and I had citizens bank, Bank of America and Wachovia before it became Wells Fargo and they all had some sort of monthly fees but with this card, I am happy. I won’t spend what I don’t have! :)
    The downside would be that you can have a max bal of $5000 and no more that that.
    I use this card as a back up funding for my paypal, I buy from amazon etc and never had any extra fees.

  • dan

    useful for putting money on a card for my step-daughter. so from my bank account to her card.

  • chrisj979

    You forgot to mention that you can reload the serve card for FREE at any CVS, just bring your card and cash to the register. You will need your ID if you’re adding more than $200, but it’s still FREE reloads can’t beat it. And I have bank accounts but my NEED for a prepaid card is online shopping. I will never again use my major accounts for those types of transactions. I put on what I want to spend and spend it, if someone steals the info oh well its a lot easier to manage in case of someone stealing your card info. Also great for my 14 year old when I’m out of pocket. So no the card is not just for the poor or people with bad credit it has many uses…horrible article.

  • Michael Williams

    well i have the amerx serve card and its great for me cause it doesn’t cost me anything to load money where i live and when i use it i just swipe and it works like having a credit card almost except I’m only spending what i put on it. and the offers are great as well. I personally think this is the best prepaid card there is

  • Michael Williams

    I also had money held on my card but for only 8 days. was mad at first but when the money was put back on the card it was right on time so i have no complaints as a new user