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How to Keep Prepaid Card Costs Low Until New Rules Take Effect

Oct. 11, 2016
Banking, Personal Finance, Prepaid Debit Cards
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The Consumer Financial Protection Bureau recently released new regulations aimed at making prepaid cards more secure and their fees and services more transparent. Although this is good news for consumers, there is one catch: The rules won’t go into effect until Oct. 1, 2017.

In the meantime, here’s what prepaid users need to know — and do — to keep their costs low and make the most of their cards.

Avoid fees by reading the fine print

Certain things, like birthday cards from distant relatives, can be speed-read without much consequence. Prepaid card fee schedules don’t belong in this group.

Along with monthly service fees and ATM withdrawal surcharges, two fees common in the banking world, prepaid cards can have their own unique set of surcharges. If you want to avoid these costs, it’s crucial to read the fine print before you commit to a card. 

Service and transaction fees: Check to see whether a card charges transaction fees — typically around $1 or $2 per purchase — or a monthly fee; they usually don’t charge both. If you think you’ll use your card for daily purchases, opt for the latter.

Some of the best prepaid cards don’t charge transaction or monthly fees at all — or they might give customers ways to avoid them, like maintaining a minimum balance. 

Reloading fees: The best cards offer several free ways to load money onto the card. Other issuers may not be as generous, charging as much as $5 to reload your plastic at select retailers and offering only one or two free alternatives.

ATM fees: You’ll want to look for a prepaid card that comes with a wide ATM network. That should leave you less reliant on out-of-network cash machines, which can cost as much as $2.50 per withdrawal, plus fees charged by the ATM owner.

Overdraft-related fees: If you want to eliminate fees wherever possible, you’ll want to prioritize cards that deny transactions that would incur an overdraft. Other prepaid cards offer overdraft protection services, which can cost as much as $15 per overdraft.

» MORE: NerdWallet’s best prepaid debit cards

Find a card that offers protections, and know how to dispute errors

As it stands, prepaid card issuers aren’t required to offer protections for lost cards or unauthorized transactions. That puts the responsibility on consumers to make sure the card they select has those kinds of safeguards. You may have to call the card’s issuer to unearth this information.

If you do need to dispute a transaction, you’ll want to know how best to reach your card’s issuer. Some charge a fee for speaking with customer service, so try to find a card that offers live support for free.

You’ll also want to select an issuer that’s insured by the Federal Deposit Insurance Corp. That means you wouldn’t lose any money — up to $250,000 — if the bank associated with the issuer failed. You’ll have to register your card with the issuer so the government knows you’re a cardholder, and therefore would be owed money if the issuer were to fail.

» MORE: What the new prepaid debit card rules say

Vet an issuer’s online and mobile banking platforms

Some prepaid cards don’t come with monthly statements like credit and debit cards do, so you’ll need to find a different way of monitoring your account balance and spending. This will likely take the form of an online or mobile banking platform. If an issuer offers a mobile app, check its ratings on the iTunes and Android stores. Are reviews generally favorable? 

Beyond an app’s ease of use, make sure it offers certain features, like a mobile check deposit service, which can save you time and money.  

Use a prepaid card to rein in spending

Once you’ve found a prepaid card that keeps costs low, focus on how to make the most of it. For one, prepaid cards can double as solid budgeting tools.

Since your spending is limited to the money loaded onto your card, you can be strategic with how much cash you load. Timing is another crucial factor. Adding too much money before you head to the mall, for instance, could end up hurting your budget. Although they may be subtle, these kinds of moves can help you make the most of your prepaid card.

Tony Armstrong is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @tonystrongarm.