What to know about prepaid debit cards


The cards make it easy to shop online. This time of year they're heavily promoted as a way to get your federal tax refund fast, but Consumer Reports says buyer beware.

You can buy prepaid debit cards in stores and online. They bear familiar logos like MasterCard and Visa. And, like a regular debit card, you can use them to make purchases and to get cash at ATMs.

But after examining the extensive terms and conditions of 16 prepaid debit cards, Consumer Reports says that's where the similarity ends.

"If your prepaid card is lost or stolen or there are errors on your account, you don't have the same legal protections that you do with a traditional debit or credit card," said Mandy Walker with Consumer Reports. "And there can be lots of fees."

Take the AccountNow Gold Visa prepaid card. Its fees include a monthly charge of $9.95, unless you've loaded $2,500 on the card that month. Using an ATM to withdraw cash costs $2.50. Plus, you'll pay $15.95 if you want to close your account and get a check for the remaining balance.

Although some cards imply they can help improve your credit history, Consumer Reports says they can't.

"These are a type of debit card," Walker explained. "So the big three credit agencies don't use any of the activity on them to determine your credit score."

TV personality Suze Orman's new prepaid debit card is trying to change that in a pilot program with Trans Union -- one of the big three credit agencies. But Consumer Reports says it's uncertain how effective that will be.

Companies that sell prepaid debit cards say they are a good alternative for people who don't have a bank account or don't qualify for a credit card. But Consumer Reports says prepaid debit cards should have the same legal protections as traditional debit cards and credit cards and the fees should be clearly disclosed so people can compare the cards.

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