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Consumer Reports: What you need to know about prepaid cards

Thursday, October 3, 2013 - 9:52 am

Prepaid cards are the fastest-growing payment method in the U.S., and they're attracting those who want to budget their spending. And our new report has some positive news for consumers: Fees have declined, and many prepaid cards offer more features.

Consumers Union, the policy and advocacy arm of Consumer Reports, has tracked the prepaid card market for years, and previous analyses found that checking accounts (which prepaid cards aim to replace) provided guaranteed protection at a lower cost than most cards. This year's report on 26 cards found that some are more competitive with checking accounts.

Prepaid cards are often given to teens and the college-bound because parents can reload them from afar and oversee spending. In 2012, about $77 billion was loaded onto prepaid cards in the U.S., according to the Mercator Advisory Group.

Prepaid cards often look like debit cards, with American Express, MasterCard or Visa logos. They can be used to withdraw cash from an ATM, pay bills or make purchases online and in stores. Unlike debit cards, they're not linked to traditional bank accounts. But some cards are still quite expensive, and not all of them offer the conveniences that consumers might expect.

One big knock against the cards are the fees for activation, monthly maintenance, reloading and ATM use. The monthly prepaid Visa RushCard option, for example, has a one-time activation fee of $3.95 or $9.95, depending on the card design, and a monthly fee of $9.95. But it can get worse.

For example, the NetSpend Prepaid Visa Pay-As-You-Go card carries a $1 or $2 “swipe” fee every time it's used to make a purchase. That can add up. The top cards in our survey do not charge purchase fees.

Two-thirds of the cards in our survey allow the use of ATMs free or for a reduced fee. Text and email alerts give account information. When considering a card, check to make sure your funds will be FDIC-insured.

Watch out for fine print in price-matching policies

Retailer price-matching policies, which promise to equal or beat a competitor's price before a purchase (or in some cases, after), can protect you from overpaying – if you can get through the fine-print exceptions. Some purchases are ineligible, including clearance items, those from opened boxes, special orders and items available for a limited time.

For example, Staples retail stores will match prices of other walk-in stores, but not those of online retailers except Staples.com. Sears won't price-match Internet-only retailers.

Read store policies carefully, especially if you're counting on price protection, which promises to reimburse you for the difference if you find a lower price within a certain period after making a purchase. If you're unsure whether a price guarantee applies at a walk-in store, call ahead before venturing out. If a retailer rejects your request for a post-purchase price adjustment on an item you haven't used, find out if you can return it under the store's regular return policy. Also check your credit card; some offer price protection.