Beware of Prepaid Cards

Prepaid cards are reloadable and can be used for purchases at businesses that accept credit cards and can sometimes be used for ATM withdrawals. A prepaid card should be used in addition to having a traditional bank account but should not solely for money transactions.

There are many advantages to using prepaid cards but there are also many disadvantages. Prepaid cards work similar to debit cards for making payments or purchasing items.

Prepaid cards are helpful for those who cannot get a credit card or open a bank account due to bad credit. Prepaid cards are also helpful if you don’t want to carry large amounts of cash but should only be used as a temporary measure until your financial situation improves.

Prepaid cards have activation fees, monthly fees and other hidden fees. Some prepaid cards have activation fees up to $39.95 but most fees range from $2.95 - $9.95. They also have less protection against loss or theft. Be sure that the bank prepaid card you use is FDIC insured. Prepaid cards are not reported on your credit report and cannot help rebuild your credit.

Some consumers have been scammed by companies regarding prepaid cards. Over 100,000 consumers who paid for payday loans online were tricked into paying for prepaid cards instead. Consumers signed up for payday loans but were tricked into signing up for prepaid cards with a zero balance. Consumers paid up to $54.95 for the cards. However, the Federal Trade Commission sued the company Epiq Systems and required a refund of $1.9 million dollars for refunds ranging from $10-$15 each.

Many non-financial companies also offer prepaid cards such as Facebook which is available at Target and Wal-Mart. The cards can be used to purchase Facebook credits which are applied to purchase games or other applications. Comparison shop and read all the fine print before choosing a prepaid card.