Pros and Cons to Getting Your Tax Refund on a Prepaid Debit Card

Erin El Issa
By Erin El Issa 

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Tax season is in full swing, and if you’re due a refund this year, you may consider having it loaded onto a prepaid debit card. Before you do, you should know that there are pros and cons to choosing this route. While a prepaid debit card may be a decent option for those without bank accounts, the high fees make it less than ideal for those with other options.

The pros of getting your tax refund on a prepaid card

If you don’t have or can’t get a bank account, a prepaid debit card is a solid option. For a fee, you’ll be able to access your funds easily and won’t have to worry about finding a place that will cash a large tax refund.

Nerd note: If you’re able to get a checking account, you should. Check out this NerdWallet article on finding a free checking account for help.

If you’re planning on spending your tax refund, or want to keep it separate for a planned purchase, a prepaid card will help you stay organized. Perhaps you’re earmarking it for an upcoming vacation or a wardrobe revamp. Either way, by keeping these funds separate, you can use them for their intended purpose.

The cons of getting your tax refund on a prepaid card

The Nerds have some qualms about getting your tax refund on a prepaid card. Let’s start with the most obvious: fees. Prepaid cards are expensive, and may come with fees to reload the card, use the card or take money out at an ATM. Some cards also have monthly maintenance fees. And prepaid debit cards don’t help you build or maintain a good credit history.

Because of the high costs, getting your tax refund on a prepaid card really makes sense only if you don’t have a bank account. Otherwise, you can get funds quickly by opting for direct deposit instead of getting a paper check.

If you’re planning on spending your tax refund, it’s a good idea to put the funds into the bank and use a credit card for your purchases, provided you pay off your balance in full each month. With a credit card, you’ll likely earn rewards and get benefits you wouldn’t get from a prepaid or regular debit card. You can use your refund to pay off your credit card on or before the due date.

Nerd note: If you haven’t gotten to the point where you feel comfortable using a credit card for your daily purchases, use your regular debit card to avoid incurring prepaid debit fees.

Putting your tax refund on a prepaid debit card makes it harder to save. You could use the prepaid card for spending and transfer an equal amount from your checking to savings or investment account, but that would be an extra task. Instead, have your refund deposited directly into your savings account, or have it deposited into your checking account and move it to your investment account as soon as the funds are available.

Bottom line: Getting your tax refund put onto a prepaid debit card may be a good option if you don’t have a bank account, or want to keep the funds separate for some reason. However, as a general rule, it’s a better idea to get a direct deposit or check. You’ll be spared the high fees of prepaid cards and you’ll be able to send the funds straight to your savings account.

Erin El Issa is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @Erin_Lindsay17 and on Google+.

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