Prepaid cards are a growing business, with the Federal Reserve estimating that 17% of Americans using them – and the number is growing.
Convenience, combined with a desire to get out of debt, is the driving force behind the move from credit cards to prepaid debit cards.
Over the years, Americans have shifted more and more toward the use of plastic for everyday purchases, and for many, the result has been staggering debt. The ease of use, combined with rising interest rates and the add-on fees from late charges, over-limit charges, etc. could turn a $50 purchase into a $250 burden.
Now Americans are trying to get out from under all that debt, and one way is to limit their spending through the use of prepaid cards. Yes, there may be a fee for using the card, but there are no interest payments and no late charges. You can’t sink farther into debt using a prepaid card.
For some, checking accounts were just as dangerous as credit cards, and they ended up paying overdraft fees – and often lost the right to have a checking account at all. For them, the only way to shop or pay bills on line, reserve a room, or fill up at a late-night gas station is with a prepaid card.
The cost is less, as well. Consumers can sign up for direct deposit, eliminating the cost of check cashing services while at the same time reducing or eliminating the fees on the prepaid card.
But even financially secure consumers are turning to prepaid cards for the convenience and perceived safety.
These consumers see prepaid cards as a safer way to pay bills or shop on line, since there is no worry of identity theft. Even a stolen card number can only cause a loss up to the amount on the card – it can’t overdraw a bank account or run up huge credit card bills.
They also see prepaid cards as a safer alternative to carrying cash. Cash, once lost, is gone. But consumers who have carefully chosen their prepaid cards have a reduced risk of loss.
It IS important to read all the fine print before choosing a prepaid card. Prepaid cards were left out of the Credit Card Accountability Responsibility and Disclosure Act regulations, so issuers are pretty much at liberty to make up their own rules.
Government entities are also turning to prepaid cards.
Government entities are beginning to use prepaid cards to disperse wages or funds such as unemployment benefits and food stamps. The cost to recharge a card is much less than the cost of printing and mailing checks, and there is no danger of funds being lost in the mail or stolen from mailboxes.
Recently, Veterans receiving disability benefits were given the option to switch to pre-paid cards in place of direct deposit or mailed checks. Social Security and Medicare will probably be next.