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Why Americans Like Prepaid Debit Cards

Americans like prepaid debit cards. They really do.

Yes, we can question the wisdom or convenience of picking up a prepaid card when it’s still possible to get free checking accounts at numerous banks and credit unions.

But it’s undeniable the market is exploding. Billions of dollars are placed on prepaid cards each year, and annual usage is expected to reach nearly $202 billion by 2013, a Pew Health Group report cited.

So why are people flocking to these products — many of which carry charges that make today’s bank fees look downright generous?

People who don’t have a bank account are obvious potential customers for prepaid debit cards, but a recent Pew Health Group report highlighted in a New York Times blog post offered some surprising lessons from a focus group of prepaid card users.

Most focus group participants said they have a checking account but prefer prepaid cards because they like the predictability of plastic fees over their bank fees. They also think prepaid cards are better for fighting identity theft, fraud and privacy intrusion.

Here are a couple of comments from the report:

“I don’t like the fees on prepaid debit cards. … It costs to load (them). It costs $3.95. I don’t like that I pay the $3.95, but I’d prefer to pay the $3.95 than have to deal with the things that I know that people go through with their checking accounts. I’m good with my checking account. Nobody wants to pay extra fees. If we had to, I’d take the $3.95 any day over the $35 overdrafting or for some other fees.”

“I think (prepaid card fees) are fair because they’re upfront. I’m thinking in contrast to a checking account. I think the ambiance and the idea of the marketing behind a checking account is they’re your friend; they’re your hometown bank. You can depend on them. You can count on them and, really, they’re just lulling you into the sense of comfort because they’re going to whammy you with fees on the backside. Whereas prepaid debit cards, they’re very upfront. This is the cost of the card; this is the cost for the services. It’s up to you at that point.”

But most of the participants, according to Pew, were unaware that some prepaid debit cards provide no FDIC insurance. They also were “very concerned” prepaid debit card companies don’t have to follow the same fee disclosure rules as banks and credit unions.

More often than not, we’ve run across prepaid debit cards that are clear about the enormous fees they plan to charge for the privilege of accessing your money through one of their cards.

That being said, there are some decent prepaid debit cards out there. Here are a few we like:

Mango MasterCard Prepaid Card charges a $5 monthly fee, which is reimbursed as long as you deposit at least $500 a month on the card. You can also open a Mango savings account that pays 6% APY on balances up to $5,000.

American Express Prepaid Card has no monthly fees and gives you one free ATM withdrawal a month (it’s $2 per withdrawal after that). You can put money on the card for free via direct deposit or bank transfer. There’s also a cash option, buying a MoneyPak or Vanilla Prepaid Reload at participating retailers.

Wal-Mart MoneyCard charges a $3 monthly fee, which is waived if you load at least $1,000 to the card a month. You’ll also be charged $3 to reload the card at a Walmart store, but it’s free to load via direct deposit.

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