Bank prepaid cards, also called preloaded credit cards, are popular with consumers who have a less than perfect credit and can’t qualify for a credit card with reasonable APR rates, due to inability to pay credit card debt.  They are also an alternative for people who can’t afford to have a checking account due to high fees on overdraft and other services.

More banks are adding fees to services who once were free, so many people are opting out of bank accounts and choosing these prepaid cards instead. These reloadable cards carry the same credit limit you load on them when you pre-pay them, so this is a good way to control spending.  However they also have some drawbacks, so before you rush and apply for one, let’s look at the advantages and disadvantages of bank prepaid cards.

Benefits

  • Most banks allow customers to direct deposit their paychecks to their preloaded cards.
  • A good alternative for someone who often bounces checks, as it leads to a better money management.
  • The best cards are accepted worldwide and offer ATM access.
  • They may be a less expensive option to cash-checking stores if you choose the right company.
  • They can be used to pay bills.
  • Very handy for online shopping.
  • Most can be used wherever traditional debit or credit cards are accepted.

Potential Drawbacks

  • Unlike traditional credit cards, federal law liability protection does not apply to prepaid cards, although some banks may voluntarily offer it.
  • You have to pay a reloading fee every time you add cash to your card.
  • If you want to close your account and want to get the remaining balance out of your card expect to pay $10 to $15.
  • Some issuers charge a $10 monthly fee.
  • If you want to use it for traveling,  beware that many car rentals and hotels place a hold on your funds, which makes it useless.
  • Some banks impose an ATM fee in addition to cash withdrawal fees.
  • Usually users pay a fee when trying to withdraw or make a purchase using a card with insufficient funds left. In other words, they’ll make you pay for a declined transaction.
  • Many banks voluntarily add liability protection, however the protection may not apply to all transactions.
  • It is easy to lose track of your balance, the only way you may know your balance is by calling customer service, which triggers another fee.

As you can see, you should take the time to compare fees and features and look for companies with fewer and lower fees. Some fees may be hidden in the fine print, so do your homework and read thoroughly before applying.