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|
(with $1,000+ monthly load)
|American Express PASS for Teens||$166.80|
|The Approved Card from Suze Orman
(with $20+ direct deposit)
|NetSpend Prepaid (FeeAdvantage)
(with $500+ direct deposit)
|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.