Credit Card
Personal Debt Issues

Plastic that doesn't melt down

by Broderick Perkins

(3/15/2012) Erate Exclusive - Prepaid plastic can be a better deal than certain checking accounts, secured plastic, credit cards and unbanked cash-based lifestyles for those who want greater shopping ease and bill-paying convenience.

Bretton Woods, Inc.'s third annual Analysis of General Purpose Reloadable Cards found that consumers who use a general purpose reloadable (GPR) prepaid card to manage their finances can do so at a relatively low cost - as little as $8 per month.

That's a lot less than the cost typcially associated with low-balance checking accounts or the costs associated with cash-based lifestyles that include utilizing money orders and check cashing services.

GPRs are a type of prepaid card typically purchased by a consumer for personal use to pay for purchases, pay bills, access cash via ATMs. Funds can be loaded onto the card by direct deposit of wages, incentives, benefits or at retail locations offering prepaid card reload services.

GPRs can include gift cards, payroll cards to which an employeer transfers wages and similar cards that can be used as cash or as credit cards.

They are not debit cards attached to checking account, credit cards, attached to a line of credit or secured credit cards, which act like a credit card, but require an attached savings or deposit account.

More like gift cards, these cards carry a convenience that comes without being tied into the banking grid while not resorting to stuffing money in the mattress.

However, when ordering online, unless they are emblazoned with your name, rather than "Gift Card Account," some merchants will not accept them for online purchases.

"With a growing number of banks not only eliminating free checking but initiating seemingly punitive fees on low balance checking accounts, GPR cards will become increasingly appealing to low-income consumers, the 25 million plus who operate outside the standard banking system and are considered unbanked," said Nancy Osborne, Chief Operating Officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

The anayysis found:

• Consumers using GPR cards with direct deposit averaged a cost savings of nearly 40 percent compared to a low-balance checking account.

Generally, checking accounts have monthly fees that can be avoided with a recurring direct deposit or a daily minimum balance of up to $1,500. However, the typical consumer of a GPR prepaid card maintains a balance of less than $100.

• Consumers who switch from cash-only payments to a reloadable prepaid card with direct deposit save 56 percent on related financial services.

Reloadable prepaid card users' costs range $8-$20 monthly if they use direct depositl Compare that to low-balance checking account consumers who pay in the range of $15 to $37 per month. Consumers who rely upon a cash-based lifestyle pay in the range of $9 to $48 per month.

"Some other analyses that judge the costs of prepaid cards and other financial products largely ignore the reality of how consumers actually conduct transactions. Costs for overdrafts, out-of-network ATM transactions and low-balance checking fees and the fact that millions of Americans cannot qualify for bank accounts must be taken into consideration when comparing the costs of traditional bank accounts to the transparent and low-cost fee structure of a general purpose reloadable prepaid card," said Kirsten Trusko, President of the Network Branded Prepaid Card Association.

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