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Five Prepaid Debit Card Pitfalls to Avoid

If a debit card is prepaid, it is often pitched as a cheaper substitute to checking accounts. With a prepaid card, you should expect normal fees as well as some pitfalls. Be sure to have a read of the prepaid debit card pitfalls below and do your level best to avoid these.

Lack of FDIC Coverage

Robust consumer protections such as insurance coverage and fraud protection come with conventional checking accounts. However, holders of the prepaid debit cards do not get these protections. They do not need to provide FDIC insurance, which is why only some prepaid debit cards have deposit insurance, whereas others do not. This is not such a big worry, until the time you run into financial trouble. Funds that are loaded on the prepaid debit card could be put in jeopardy, which is one of the prepaid debit card pitfalls.

prepaid debit card pitfalls

Card Loss or Theft

The funds of holders of the prepaid debit card are more prone to being lost or stolen. This is another one of the prepaid debit card pitfalls, which is why you must ensure your debit card is registered and attached to your date of birth, social security card, or name. The registration process is very straightforward and helps to prove you are actually you. You should register the card as soon as you purchase it. The registration can be carried out online or you can get in touch with the provider via phone. If you currently own an unregistered card, make sure you avoid this one of the prepaid debit card pitfalls by registering and requesting a replacement card as soon as possible.

Inactivity Fees and Deactivation

With a prepaid debit card, it is important that you use this. Providers of the prepaid card make money via the swipe of fees the dealer pays the bank to process the debit transaction. The company will not be making any money until you do not swipe. This explains why a survey found 29 percent of prepaid cards with some kind of inactivity fee. The fee gradually slows down the balance of the cardholder after some time.

If you are intending to use the card as a replacement for a checking account, then this is not such a big deal for you. However, if you will be using it occasionally, then the fees can add up quickly and are another one of the prepaid debit card pitfalls that you should avoid. If you will be using the card a lot, then it is important you select it in a way that it does not turn out to be a punishment.

Credit Score Atrophy

The main reason to why the demand for prepaid credit cards has exploded is that there is no need to undergo a credit check in order to get one. Regardless of what you do with the prepaid debit card, there is less chance that it will negatively affect your score. Regardless of your credit history, you will always get a prepaid card. This is because with these, you do not have to go through credit writing and neither need do you need to report to credit agencies.

No matter how good this may sound, it may also turn out to be one of the prepaid debit card pitfalls, as it can also work the other way. A credit score measures how well a person uses credit. If you are looking for ways to improve your credit score, you may find it time-consuming to achieve your goal, as the progress with one of these cards can be slow. If you are after a method to help you boost your credit, then you are better of using a credit card that is secured.

Fees for Overdraft Protection

If you are considering a prepaid debit card thinking you can easily get past overdraft fees, then it is time you think again. Overdraft protection may be offered with some prepaid debit cards, which can lead to Deja vu for a user who escaped straight checking accounts over flowing overdraft fees.

The scheme behind using the prepaid cards is that the user puts their money in first, and then spends what they have. The primary concern that consumers have is making very small overdrafts and experiencing a major amount of fees. When the providers of the debt card add on the overdraft, the value is very undermined by the user, which is another one of the prepaid debit card pitfalls.

If you wish to avoid coming face to face with overdraft fees, it is important you run through the terms and conditions of the prepaid debit card and ensure it does not allow overdrafts. If you find that it does, then it is best that you save yourself from all the prepaid debit card pitfalls and move on.