NDSU Extension Service - Ramsey County


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Pre-Paid is Not Problem Free

Pre-Paid is not Problem Free

          Many major credit card companies are now promoting another form of payment by plastic – namely prepaid cards.  Prepaid cards are a great way for people who do not have credit cards or bank accounts to have the convenience of paying with plastic.  In order to use a prepaid card, you first deposit money on the cards and can reload the card with more money at any time.   It is the “reload” feature which distinguishes prepaid cards from gift cards.

          Prepaid cars, which carry the logos of many major credit card  companies, appear identical to credit cards and be used anywhere credit cards are accepted. Like standard bank account debit cards, transactions may be processed using a signature or personal identification number (PIN). But despite the recent hype, prepaid cards are full of fees and do not have the same legal consumer protections as debit or credit cards.  Be alert to the following prepaid downfalls.

          - When prepaid cards are lost or stolen, the legal safeguards for credit and/or debit cards users do not apply. Prepaid cards may offer no coverage or at best voluntary protections from the sponsoring company.

          - Know the fee, know the fee. Fees range from inactivity fees to fees for checking your balance to fees for adding only small amounts of money to your card balance.  In other words, you could be charged a fee for increasing your balance.

          Keep track of your balance –you might face high fees for attempting to spend more than you have on the card.

          -Sign up to receive a statement so you can check your balance.

          - You can use most prepaid cars with your PIN or by signing a receipt. Your card may carry a higher fee for choosing one option over the other and  using  a signature instead of  PIN might open you up to “shortage” fees if you don’t have enough money loaded on the card to cover the transaction.

          - You cannot build a credit history by using a prepaid card.  Information on a prepaid credit card users use of credit is not provided to the three major national credit bureaus so they have no record of your use of credit.

          -Some employers are now depositing workers’ salaries on prepaid cards when employees do not have a traditional checking account. It saves the employers money on the cost of issuing paper checks and avoids the problem of lost or stolen checks.  While such payroll cards may be FDIC insured and come with better lost protections than mass-market prepaid cards, they can be just as laden with costly fees; again check if there is a fee for even your employer making small deposits to your prepaid card.



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