Prepaid credit cards -- also known as prepaid debit cards -- are becoming more popular with consumers in the U.S. But unlike many credit cards, which have no annual fees, these prepaid cards will cost you. A recent article in Time magazine noted that fees for prepaid cards can run anywhere from $10 to $27 a month, which adds up to hefty chunk of money each year.
So why do people continue to use prepaid debit cards? There are several reasons.
Prepaid credit or debit cards are popular with people who don't have a bank account. For those who don't trust banks or who are turned off by the high fees that banks can charge for everything from checking accounts to ATM withdrawals, prepaid cards may appear to be a less costly alternative even with all the charges that they carry. It's also easier to buy a prepaid card than it is to open a bank account, since the cards are readily available online, at banks and at many retail locations.
In addition, some prepaid cards will waive their monthly fees if you directly deposit your paycheck to your card, or if you load a certain amount of money on the card each month.
If you're in the market for a prepaid card, be sure that you read the agreements carefully so that you fully understand the fees that you'll pay each month and fees for any other services. For example, many prepaid cards charge you for withdrawing money from an ATM, for checking your account balance or even for calling customer service. These costs can all add up to make a prepaid card a less attractive option than it originally appeared.
Finally, it's important to understand that a prepaid card will not help you build (or rebuild) your credit, since transactions made with these cards are not reported to any credit bureaus. If you are looking for a way to boost your credit score, you're probably better off getting a credit card that's linked to a bank account. You can find some choices on CreditCardXPO’s Credit Cards for People with Limited / No Credit section.