Lately there’s been news made with prepaid debit cards associated with celebrities. The latest being Suze Orman, which actually surprises me, but then again she is out to make money for herself.
This got me to thinking about the fees for bank cards, all bank cards – debit, credit and prepaid. Does anybody really know all the fees they are paying? Is there a way to avoid half of those fees and reduce costs.
While any card will have fees, there are variations to these that can cost you dearly if you’re not careful. Let’s start with the most directly attached to a bank account, the debit card, and work to the one not even connected, the prepaid card.
Debit cards are linked directly to a bank account, most likely a checking account. These accounts take the funds directly from the account; this would seem the easiest way to control your finances. There are also fees associated with these cards.
The biggest problem is the use of debit cards at ATM’s owned by other banks. Usage fees always apply, and where I live they amount to around $3 per transaction (including balance inquiry). Many larger stores allow you to take money off of the card at the register; the catch – you must make a purchase (usually a minimum amount) and they can also charge a fee for the convenience. The other problem is the overdraft charges. While overdraft protection is available, it is often ignored or rescinded – allowing your account to rack up extra charges and then the card is cut off.
A Word About Paypal
Paypal accounts can have a debit card option. This means you have your own Paypal card to use in stores. It acts just like a debt card in that the funds are withdrawn right from your account balance. You can set up Paypal to draw from your bank account, but to make immediate transfers you need a bank card first; otherwise it takes up to five days for the transfer to be completed.
Now if you don’t have a bank card, don’t worry, use the five day transfer and just plan ahead.
Having a credit card is a short-term solution with long-term implications. Credit cards are a revolving line of credit issued by banks. No actual bank account is required for regular credit cards. You don’t need to sign anything to get the card; but if you use the card even once, you automatically agree to the terms and conditions to the agreement that came with the card. This alone traps many people to the banks interest rate and other charges; mainly due to no one reads the agreement.
What about those cards that require $300 or so placed in some account before you can use it? Those are called secured credit cards. The money you put into the account isn’t yours; in fact you are handing the bank an additional $300 for the privilege of having a credit card. Kinda stupid for consumers but really smart for the bank. You see, if you mess up and can’t maintain the credit, the security deposit is lost too.
While there is no interest on these cards, and they are advertised as a way to budget your money and control spending, they are not cheap. In the short term they can be more expensive than credit cards. Why?
Charges you wouldn’t think associated with prepaid are in fact part of the agreement you sign on with. Things like a preloading fee, monthyly fees, a fee for not using the card in a certain amount of days are all found on these cards. There is usually a fee to purchase the card as well.
So while you are able to handle money without an account using these cards, the fees and charges will quickly eat up any small balances you try to maintain. Prepaid cell phones used this same tactic for awhile when they first came out.
So which card would be best suited for people? That depends on your situation. Me myself, would take the debit card and make sure I kept track of everything. If you don’t have a bank, use cash. Don’t fall for the prepaid or the secured credit crap. Just simply use dollars and coin. Don’t like cash, get money orders, use gift cards, just don’t fall for the plastic glamor.
Which card do you think is best? What was your experience with any of the above? Join the conversation and lets talk.