As Spending Habits Change, So Do Funding Sources

Are you one of the 44+ million unbanked Americans? A survey taken in late 2010 by the Federal Deposit Insurance Corporation says about one in twelve Americans are either “unbanked” (meaning they have access to no checking or savings account) or “underbanked” (meaning they have a bank account, but rely on payday lenders and even pawn shops). From a percentage perspective, that comes to around 25% of the American public. And those numbers are expected to be even higher for 2011.

As it turns out, many of those who are unbanked or underbanked, along with those who have more ample banking resources, are opting to steer clear of heavy fee-laden bank accounts and instead are turning to prepaid credit cards. In fact, this specific niche is growing at a faster rate than any other financial product. Even American Express is taking advantage of this growing sector, introducing its first prepaid card in June, 2011.

Overwhelming Fees

While it’s understandable that many with no access to traditional financial products would take advantage of the prepaid card market, those who have maintained bank accounts for years are now relying on the prepaid debit and credit cards because the fees are lower and there aren’t as many. That said, they’re moving into this lane minus the other consumer protections a traditional bank offers. So is it worth the risk?


Many say rumors of a lack of protection is just that: rumors. Most prepaid card offer protection for unauthorized uses of their cards and many have protection mechanisms in place that protect a consumer as much as the big banks in the U.S. For instance, the READYdebit Platinum Visa Prepaid Credit Card offers the impressive Visa Zero Liability protection, meaning prepaid users are as protected as those consumers with a classic Visa benefits.

For those who say the fees are not comparable to a bank account, the truth is, there are many prepaid card offers with fees even lower than their bank fees. The READYdebit Visa has a one time $9.95 application fee and its ATM fees are just $2.00, similar to a consumer using his checking account’s debit card. Perhaps the biggest plus for using prepaid products over checking accounts is the absence of NSF fees. If the money is not available when the card is swiped, the payment or service is declined.

The Numbers

This week, the Mercator Advisory Group released its results for a three year study. It was revealed than Americans spent $140 billion in 2009 by using their prepaid credit cards. It was up more than twenty percent from the previous year and is expected to continue to grow throughout 2012, ultimately reaching $552 billion by the end of that year.

The banks aren’t helping themselves, either. Both Chase and Bank of America charge a $12 monthly fee for checking accounts that fall below $1,500. Carry a too-low balance for a few months, and those fees begin to add up quickly. With prepaid cards, these fears are never realized.

Ease of Use

Just like a checking account’s debit card, folks use their prepaid cards for the same exact purchases. They pay their bills on line, shop and dine. Not only that, but the IRS reports it issued refunds to 600,000 prepaid credit cards this year.

The Prepaid Cards

Along with the READYdebit Visa, the Green Dot Prepaid MasterCard is a preferred choice for many. The IRS will happily refund taxes using this card, activation is free, as is online bill pay, direct deposit and even cash withdrawals at participating ATMs. There are no monthly fees as long as thirty transactions are made each calendar month. Another worthy prepaid credit card is the TurboTax Tax Refund Visa Card.

A few of its benefits include a $10 credit when you enroll your card in direct deposit and your first reload fee is waived. The monthly fees vary based on your spending and activity habits, though they are spelled out in detail in the terms and conditions. There are no application fees or minimum balances to worry about and ATM withdrawals at participating networks are free.

The financial sector as a whole has been in a transition in the past several years and it looks as though the prepaid market is coming out on top as a better option to costly bank accounts.

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