Russell Simmons Tries to Defend Pricey Prepaid 'Rush Cards'
Simmons asserted in a March interview with Forbes Magazine that his Rush Card is good for people who don't have a bank account because it's cheaper than check-cashing stores.
Technically speaking, this might be true, although we're skeptical Simmons really wants to help out the unbanked as much as he says he does, given that he's not at all shy about helping himself to his customers' hard-earned dollars: The Rush Cards cost between $4 and $15 to acquire; from there, a monthly plan costs $10 a month and PIN-based transactions cost a dollar apiece. A pay-as-you go plan has no monthly fee, but every transaction costs a dollar, up to $10 a month. There are additional fees for withdrawals, checking balances and other everyday actions.So what other options are out there? Although the big banks have been the subject of a lot of news lately for their increased fees, there are plenty of smaller banks that won't hit cash-strapped consumers over the head with nickel-and-dime charges. There are a large number of regional or local banks that don't cost as much as the big banks -- or prepaid cards like Simmons'.
Credit unions, 80% of which don't charge a monthly maintenance fee for checking customers, are another good option for lower-income people who can't keep a big balance in their account. (Many only require that you keep $5 in your account to keep it open.)
Rush Cards also don't do people on the fringes of the financial mainstream any favors when it comes to their credit history. This article reports on the claim that Rush Cards help build credit. But they really only report to a couple of smaller outlets, not the big three that are responsible for your FICO score (which is all most lenders care about). The Rush Card may also be included in a special expanded score for subprime borrowers, a group lenders aren't exactly tripping over themselves to reach these days.
A better solution for people who badly need to build credit and are starting from the bottom is to get a secured credit card. Yes, they can be pricey, but they're not any more expensive than Simmons' card -- and you get the added benefit of building up your FICO score, which will help you when you want to apply for an unsecured -- and fee-free -- credit card in the future. If you use the Rush Card, though, you'll be stuck using the Rush Card forever if you rely on it to break the cycle in which unbanked Americans are trapped.