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The American Express Campus Edition Prepaid: Because College Isn’t Expensive Enough

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The Amex Campus Edition Prepaid card is about as useful – and expensive – as an art history degree. Last week, American Express announced that it would sell the Campus Edition in over 500 college campus bookstores. And sure, unlike a credit card, it won’t let you run up a large debt – but it’s hardly the right choice for incoming college grads. Given the availability of affordable student checking and the recent launch of halfway decent prepaid debit cards, it’s hard to justify giving the Amex card a choice slotting on college campuses. Students and parents are already asked to shell out for everything from meal plans to exam booklets; now they’re told to pay money for paying money.

What’s wrong with the Amex Campus Edition?

Even among prepaid debit cards, the Amex Campus Edition falls short, lacking both usability and affordability. Here’s why:

$2 ATM fee for every withdrawal after the first per month. It’s important for everyone to have a cheap way to access cash, to pay for cab fare, tip the delivery guy, or what have you. But the Amex card’s ATM fee means that a student who withdraws cash once a week – a common technique for budgeting – would have to shell out $72 a year in Amex’s ATM fees alone.

No surcharge-free ATMs. Potentially more costly than the card’s own ATM fee is the lack of an ATM network. If you withdraw from your Chase ATM with a Chase card, you don’t pay a fee, but the same ATM may levy a fee – $2.40 on average – for other cards. This fee isn’t waived for your first withdrawal.

Purchase fee. The Amex card is sold in Barnes & Noble campus bookstores, where it comes with a $4.95 purchase fee, while it’s sold for free online.

No paper statements. Getting a hard copy of your spending is useful in planning and budgeting, particularly when you’re just starting to make your own financial decisions. While most of us bank online these days, it’s worth noting that Amex doesn’t allow you to get a paper statement even if you want one.

No FDIC insurance. Traditional debit cards are backed by the FDIC, so if the issuing bank goes down, your funds are protected. However, the Amex prepaid card is not FDIC-insured, so your deposits could vanish.

Prohibitively low usage limits. The Amex card’s limits are simply too restrictive to make it viable as a primary financial product, even for students:

  • $200 in ATM withdrawals per week
  • $1,000 loaded per month
  • $6,000 loaded per year

Given that the average student spends over $1,000 a year in textbooks alone, it’s difficult to expect $1,000 to cover the first-month expenses of books, supplies, meal plans, furniture and so on. If the idea of a prepaid card is to limit your spending to what’s on the card, why don’t they let you put as much on the card as you want?

Even if you’re looking for a prepaid card for your child, you can do better than the Amex Campus Edition. Following in the grand tradition of new textbooks, the product sold in the bookstore often benefits the university more than the student.

Why college students should choose checking over prepaid

Generally, we recommend traditional debit cards over prepaid cards for everyone – they come with FDIC insurance, bring the stability of the traditional financial system and are generally a better value. When it comes to college students, there are even more reasons to go with checking.

It’s cheap. Almost all banks offer free checking accounts to current college students. Whereas other accounts require a minimum balance or e-statements to avoid monthly fees, even the major banks like Chase and Wells Fargo have free college accounts.

You’ll have to learn sometime. Young people are often stung by overdrafts – fees incurred when you run a negative balance on your checking account. For many, that’s reason enough to go prepaid. But to do so is only deferring the inevitable: unless you want to pay high fees your whole life, you’ll eventually have to learn how to avoid overdrafts. Why not do your learning in college, when many accounts have lower (or no) overdraft fees?

What to look for in a college financial product

Before you grab the first shiny plastic card you see, keep the following factors in mind:

  1. ATM access. You should be able to withdraw money from an ATM –surcharge-free – on campus and at home.
  2. FDIC insurance. If the issuing bank fails, make sure you’re covered. Traditioanl debit cards must be FDIC-insured; prepaid cards have no such requirement.
  3. Fraud protection. If your card is lost or stolen, how much could you lose? Debit cards limit your liability to $50 if you report the theft within 48 hours and $500 if you report it within 60 days of receiving your statement; credit cards cap your liability at $50 no matter what. Again, prepaid debit cards have no such protection, so any fraud liability is completely voluntary on the issuer’s part.
  4. Overdrafts. Some checking accounts – and most of the ones offered by for-profit banks – will let you run a negative balance, but will charge you a fee for the privilege. Even if you find a checking account that doesn’t allow overdrafts or doesn’t charge a fee, make sure you understand overdrafting and can take steps to avoid paying fees.
  5. Credit scores. Establishing a solid credit history in college will serve you well post-graduation: a good FICO score puts you on the road to getting an apartment, landing a job, and scoring lower rates on loans and insurance. Debit cards, prepaid or otherwise, don’t help your FICO score; credit cards and student loans do.

Alternatives to Amex

Go ahead, buy your college hoodies at the bookstore. But when it comes to financial products, the campus may not have the best products out there for you. Here’s a basic framework for deciding what to keep in your wallet.

Credit cards

  • Advantages:
    • Build your credit score
    • Can set a low limit
    • Often earn rewards
    • Limited fraud liability
  • Disadvantages:
    • Allow you to go into debt
  • What to look for:
    • Low interest rate, if you carry a balance
    • Rewards, if you don’t
    • No foreign transaction fees, if you travel abroad

Debit cards

  • Advantages:
    • Can’t go into debt
    • Easy access to cash
    • Safer and more convenient than cash
    • Sometimes earn rewards
    • Often have linked savings accounts
    • Limited fraud liability
  • Disadvantages:
    • Allow you to overdraft
    • Don’t build credit
  • What to look for:
    • Easy access to no-fee ATMs
    • No monthly maintenance fees
    • Clear, easily understood overdraft program

Prepaid debit cards

  • Advantages:
    • Can’t go into debt
    • (Usually) can’t overdraw
    • Often (though not always) have fraud protection and FDIC insurance
  • Disadvantages:
    • Often more costly than checking accounts
    • Barrier to mainstream financial system
    • No required FDIC insurance or fraud liability limits
    • Don’t build credit
  • What to look for:
    • No-cost cash withdrawals and loads – make sure the card has an ATM network
    • No per-transaction, bill payment, activation or cancellation fees
    • Simple fee structure
    • Reasonable usage limits

P.S. Check out our financial literacy tools to get your college finances on track.