SAN FRANCISCO (9/24/08)--Because they have high levels of credit card debt, college students are being marketed a new kind of card: prepaid debit. Although prepaid debit cards have advantages for some, they’re a minefield for others (MarketWatch.com
Sept. 12). The benefits of prepaid debit cards for college students--or anyone who lacks a good credit history--are clear: There’s a limit on spending up to the amount of money you’ve loaded onto the card. Because of the set limit, it’s impossible to incur overdraft charges. You can add value to the card via direct deposit, cashing a check, or with cash. And there’s no credit check or employment verification (MSNMoney.com
March 25). However, prepaid debit cards also have drawbacks. Expect to pay fees for some or all of the following:
* Card activation; * ATM transactions; * Each PIN-based debit card purchase; * Balance inquiries; * Online bill payments; * Declined transactions; * Monthly maintenance; and/or * Lack of transaction activity.
There’s more. Prepaid debit cards carry fewer consumer protections than credit cards when they’re lost or stolen. And the cards don’t help you establish a good credit history because they’re not considered a line of credit. If you’re considering a prepaid debit card, ask the issuer about policies and fees. Shop around for a card with few restrictions and low fees. One card offered by Iowa-based MetaBank charges a $4.95 monthly inactive-account fee if you don’t use it for more than 90 days, and it doesn’t let you use cash or checks to upload more money to the card. Like any purchase, compare before you buy. For more information, read “Tough Times Series: Credit Savvy Is Key to Avoiding Costly Missteps” in Home & Family Finance Resource Center