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Prepaid Cards vs. Debit Cards: a Closer Look

Monica Hoolsema, Chief Operations OfficerI just don’t understand the appeal of the prepaid card. It especially concerns me that prepaid cards are being heavily marketed to young people, as if they didn’t need a checking account.

In most cases, a debit card connected to a checking account will do everything a prepaid card will do—and more—at a lower cost. In a February 2012 article from SmartMoney.com titled “10 Things Prepaid Card Issuers Won’t Tell You,” item #5 is “Old Fashioned Checking Accounts Are Still A Better Deal.”

The article states, “Fans of prepaid cards say they can be a better deal than checking accounts—especially these days when banks are upping checking account fees. But many checking accounts are still more affordable than prepaid cards.”

I hear Chase advertise their “Chase Liquid” prepaid card on the radio all the time, with a low monthly fee of $4.95 and no reloading fees. Key word—monthly fee. Now compare that to our free Mission Fed eChecking Account that comes with a Debit Card that has no monthly usage fees. We don’t charge reloading fees either. To us, “reloading” is just members making deposits, so why would there be a fee? And that’s a savings of $59.40 per year.

So I did my own casual survey among friends, asking why the prepaid card is so popular. Here are some of their answers, with my rebuttals.

“There are no overdrawn fees on prepaid cards…you can only spend what you have!” That is also true of our Debit Card if the cardholder elects to not enroll in a courtesy pay program.

“The parents or youth feel they have more control with the prepaid card by only loading the dollar amount that they are allowed to spend.”

It’s the same with our Checking Accounts. Parents or young people can transfer whatever amount they would like into the Checking Account that the Debit Card accesses. This can be done 24 hours a day, without any fees, using MissionLink Online Banking.

“Young people don’t want to be tied to a financial institution.”

I’m not 100% sure where that’s coming from, but to save almost $5 per month, I think young people would be okay with it, especially if they understood that credit unions were founded to serve members, not to make money. Plus, almost all prepaid cards are associated with some financial institution—it’s just a different way to market what is essentially a debit card, and charge fees in the process.

More importantly, Mission Fed’s Debit Card has more free features than any prepaid card I’ve heard about. This includes:

  • Purchase Assurance - protects you up to 90 days against theft, damage or loss of purchases made with your card
  • Satisfaction Guarantee - provides up to $250 per product, if you become dissatisfied with the product within 60 days of purchase and the merchant will not accept a return
  • Extended Warranty Insurance - doubles the time period and duplicates the coverage of the original manufacturer’s U.S. store brand warranty for a maximum of one year

So, if you’re thinking about purchasing a prepaid card, please use this information to make an informed decision—you may decide that a Debit Card is a better choice! You can check out more details on our website.

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