Why You Should Avoid Prepaid Cards

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Prepaid cards are widely considered to be a sensible alternative to using a bank-issued credit or debit card, especially for people who are unable to open bank accounts. With prepaid cards, there's no background check required, no interest to pay on the account balance, you can't exceed spending limits, and you don't need a bank account to get one. These cards are easy to use, and you can start using them as soon as you make the purchase. So what's the problem?

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Prepaid cards come with a slew of disadvantages, many of which are only visible to a consumer who makes a point to read the fine print. Here are a few of the drawbacks of opening a prepaid card.


Security may be compromised
When you find an erroneous charge on a bank statement associated with a financial institution, and then you report the fraudulent charge, the bank will typically issue back all or a portion of the money you lost. This doesn't necessarily hold true when it comes to prepaid cards. If your security is compromised and someone uses your prepaid card to make a fraudulent charge, the bank will likely not reimburse you.

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Another security issue with prepaid cards? Hackers. While it's also possible to hack into your bank-issued credit or debit accounts, prepaid cards have even fewer controls on them, which makes them easier to hack into and harder for banks to track.

No credit benefits
Many people prefer to avoid bank-issued credit cards out of fear that using them will result in substantial unpaid credit card debt and pricy interest charges. But for people who feel comfortable responsibly using and managing credit cards, using one is more beneficial than using its prepaid counterpart because it will help build credit over time.

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Overloaded with hidden fees
Prepaid cards are often laden with fees, so it's important to stay up to date on the terms and conditions of the card you choose. These include fees for activations, ATM withdrawals, reloading funds, monthly maintenance, inactivity, balance inquiries, and even customer service calls.

Sarah Kaufman is the editor-in-chief of the Manilla Blog at Manilla.com, the leading, free and secure service that helps you simplify and organize your daily life. Using just one password, Manilla lets you manage your finances, utilities, daily deals, travel and rewards programs, Netflix and magazine subscriptions, and more -- all through Manilla.com or the top-rated iOS and mobile apps. Sarah is also a regular contributor to Yahoo! Finance, Good Housekeeping, Woman's Day, The Jane Dough and other major sites. For more debt and credit tips, visit the Manilla Blog.

The article Why You Should Avoid Prepaid Cards originally appeared on Fool.com.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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