Prepaid cards: an alternative to a traditional bank account

Prepaid cards have improved over the past five years. Some now come with no fees and can replace a checking account or be used as an alternative to credit cards.

Damian Dovarganes/AP/File
Retail manager Michael Garcia poses for a photo with his Green-Dot prepaid debit card at his home in Alhambra, Calif., in 2011. Some no-fee prepaid cards can be used in place of a checking account.

If you’re like most people, you probably don't think you need a prepaid card. But the prepaid cards of five or 10 years ago are not the cards of today, according to a recent study.  Many are fee-free and have the potential to save a consumer hundreds of dollars in fees each year.  They're worth a second look, even for those with a great credit rating. You can use a prepaid card:

1. In place of a bank

Today’s banks are full of fees and those charges can add up to hundreds of dollars each year. Some banks charge you a monthly maintenance fee, ATM fees, bill-pay fees, and over-the-limit or returned check fees. Any interest the bank pays often amounts to pennies compared with what a bank is charging you to use your own money.

Some prepaid cards available today are fee-free. You can have your paycheck deposited directly to your prepaid card. Cards like the Bluebird by American Express come with bill-pay features, ATM access, and no monthly maintenance charge.

That’s quite a change from a few years ago when a bank account was a better option for most consumers.

2. To control your spending

Do you have a spending problem?

You’ve heard that the best way to control spending is with a budget, but if that hasn’t worked you may need something foolproof. That’s where a prepaid card can help. Load a certain amount of money onto the card each month and don’t reload it until the following month.  You can only spend what is available on the card so you won’t get in over your head.

3. To avoid credit cards

A credit card could be a positive addition to your financial toolbox, but for too many Americans credit cards are creating debt that may ultimately lead to bankruptcy.  If you have a lot of credit card debt now, or you recently paid off your balance, a prepaid card is the perfect tool to keep you from adding more debt or falling into old habits.

4. Teach your children financial lessons

Did anybody teach you how to manage your money when you were a child? Most Americans would say, no, but that doesn’t mean you shouldn't teach your children how to save and spend. Give them a prepaid card with a certain amount preloaded. Tell them they will receive no more money until the following month. If they can spend less than their monthly allowance, the leftover funds carry over to the next month. Think of the many valuable lessons you can teach with that prepaid card.

– Daniel Tulbovich is co-founder of He writes frequently on credit-related topics.

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