Prepaid debit cards entered the financial market in 1990 when credit card companies realized that a large portion of the United States did not have the income or credit to qualify for a traditional credit card. At first, the prepaid cards came in the form of secured credit cards, but once they grew in popularity, financial institutions realized the potential to not only acquire customers who need credit cards, but also those who need bank account alternatives. Similar to that of how cellular companies have marketed themselves as alternatives to landlines for consumers, the concept of an “alternative” banking solution has taken off.
The Rising Costs of Traditional Banking
Today’s bank account is costly for consumers. Fees rise on an annual basis and, regardless of consumers’ standing with their bank, they are charged more and more each year just to keep their money there. Higher fees and tougher account requirements are continuing to rise as the economy declines. Some of the fees consumers can expect in the coming years include:
• Higher annual account maintenance fees
• Fees charged for closing accounts
• Higher overdraft and insufficient fund fees
• Monthly maintenance fees
• ATM withdrawal fees-even at participating locations
• Higher membership fees for credit unions
On average, consumers pay $2.40 per ATM withdrawal at non-participating locations and over $30 for insufficient funds, which can add up significantly over time. For example, a customer with a traditional checking account may encounter a $12 monthly maintenance fee, $50 for insufficient funds once that month, $5 for ATM transactions, and $5 per month for card maintenance, resulting in $72 just to have a checking account that month.
Why Prepaid Debit Cards Are Better Than the Traditional Bank Account
More consumers are ditching their traditional bank accounts and opting for prepaid debit card options. Although there is typically an annual fee for prepaid debit cards, customers do not have to worry about the traditional monthly and annual fees, such as overdraft or insufficient funds, debit card maintenance, or membership fees. Prepaid debit cards operate just like a bank debit card. Users can receive their paychecks through direct deposit or at a participating location without worrying about processing fees. With prepaid debit cards, users can purchase in-store or online, pay bills, and take out cash.
In addition to the annual savings, consumers no longer have to worry about the strict standards imposed by today’s financial institutions. With more banks denying consumers access to credit cards because of poor credit history, prepaid debit cards are growing in popularity.
Prepaid cards may help consumers prevent debt as well. With a traditional credit card, consumers can spend and wait 25-30 days before making a payment. Then they have the option of making a minimum payment and tacking on interest, which adds up over time. With prepaid debit cards, there is no interest and no worry about charging more than a consumer can afford.
Consumers who are denied traditional bank accounts or who are simply tired of paying excess fees will benefit from the use of prepaid debit cards. Prepaid cards offer freedom, simplicity, and a way to pay without driving up debt.