It is estimated that about 60 million Americans do not have a bank account. The reasons for this vary.
Want to establish credit for the first time, or re-establish credit after bankruptcy? Prepaid credit cards may be the answer for you. They may also be the answer for students and their parents, and may be the only answer for people living in some developing countries.
In today’s cashless society, it is difficult to get along without a credit card. It’s almost essential if you want to buy anything online, although the cumbersome route of sending a check is possible in many cases.
60 million must pay cash
60 million Americans don’t have checking or savings accounts, credit cards or debit cards. If they receive a check, it costs them up to 20% to get it cashed. Paying bills can be a nightmare, trekking to various offices and paying them in person. Hotels, car rentals and the Internet are mostly off limits. The American Dream relies on credit cards.
Prepaid credit cards are also a way to control spending to amounts you can afford. You can’t overspend, even if you want to. Other advantages include no credit checks and no interest charges. They are a convenient way the transfer money to the cardholder at no cost, handy, for example, for international students. Prepaid credit cards are easy to get online, and can be used almost anywhere where MasterCard or Visa cards are accepted.
A prepaid credit card is a useful learning tool for children. Pay the initial setup fee (usually from $5-50), and let them pay the smaller renewal fee when the initial period expires. Teach them that if they let it lapse they have to start all over again with a much larger fee. A lesson in financial responsibility.
College credit used to be something you earned by attending class. Today, it often refers to how much a student owes. Seventy-eight percent of college students carry at least one credit card. Average debt is $2,748, according to one source. A prepaid credit card is a great way to start teaching kids that money doesn’t grow on credit cards. It allows students to carry money safely, to have it available when needed, and parents to have control over teen spending.
The Vaya MasterCard, as with most prepaid credit cards, requires no credit check or bank account. Direct deposits are free. There is an application fee of $49.00, and a monthly fee of $5.95.
Wired Plastic Prepaid Visa offers one point for every $1 spent. Points can be redeemed for prepaid wireless, Internet or calling card airtime. Cash can be added through Western Union offices. The activation fee is $9.95, and the monthly fee is $3.95. There are fees for various types of transactions.
Liberty Union Prepaid Visa Debit card has no activation fee, a monthly maintenance fee of $4.95, plus usage fees, which include $10 a month on inactive accounts.
Fees are a small price to pay for the convenience of a credit card and not having to line up to pay bills.
For many, they are unable to qualify for a bank account because of past bounced checks. Bounce too many checks, and you’ll find yourself in the Chexsystems, which many banks use to evaluate potential new banking customers.
For others it’s simply a distrust of the banking system or frustration with limited hours or the hoops one has to jump through to get service.
Whatever the reason, the unbanked often turned to expensive check cashing stores to cash their weekly paychecks. Time Magazine wrote about this phenomenon, which costs consumers $10 billion a year in fees charged by check cashing stores, payday loan providers, and others. It’s not at all uncommon for consumers to spend 3% or more to get a paycheck cashed.
In addition to high cost, check cashing stores present several other problems to consumers. First, there is the question of security. Taking your paycheck to a check cashing store and walking out with hundreds of dollars in cash is like wearing a bulls eye on your back. Second, there is simply the question of inconvenience. The weekly trip to a check cashing store takes time and gas.
For those that can’t get a checking account or simply don’t want one, there is a no cost, convenient, and safe alternative to check cashing stores–a prepaid credit card with no fees or low fees.
The key to finding the right prepaid credit card is to find one that charges no fees or very small fees. All prepaid cards charge various fees, but some of them waive some or all of the fees if you sign up for direct deposit. So here are the top free prepaid cards and low fee prepaid cards to consider.
How a Prepaid Card Works
A prepaid credit card works very similar to a bank debit or ATM card. You can add money to the prepaid card and use it anywhere Visa or MasterCard debit cards are accepted. Money can be added to most prepaid cards in one of several ways:
Direct Deposit: Most prepaid cards allow you to have your paycheck, government check, or benefits check deposited directly onto the card. As described below, the direct deposit feature is extremely convenient and allows you to obtain a prepaid card for free or for a small monthly fee.
Cash Networks: Cash can be added to most prepaid cards through one of several cash networks, including Green Dot, MoneyGram, Western Union, or Visa Money Link. These cash networks are located at many nearby stores, such as CVS, Walmart, Kroger, and UPS.
Money Share: Prepaid cards also permit you to transfer funds from one card account to another. This is a convenient way to transfer money to friends and family, and is why many college students carry prepaid cards.
Prepaid cards are part of either the Visa or MasterCard debit card network. As a result, prepaid cards can be used anywhere that Visa debit or MasterCard debit cards are accepted (which is just about everywhere). You can also use prepaid cards at ATM machines to withdraw cash.
Benefits of a Free Prepaid Credit Card
Prepaid credit cards offer several benefits beyond a simple ATM card. Perhaps the key benefit is direct deposit of paychecks, government checks, and benefit checks. There are several prepaid cards that will waive all fees if you have your paycheck direct deposited to the card. With direct deposit, your paycheck will be added to your card on payday. You don’t have to go to the trouble and expense of driving to a check cashing store to cash your paycheck. And the money is available immediately. If you receive a government or benefits check, you can also have it deposited directly onto prepaid cards for no fee.
There is one other important benefit to these cards–online bill pay. The top prepaid cards can be used to pay bills online. Just like a bank account, you can have funds transferred from a prepaid credit card to pay car loans, the mortgage, utilities, or just about any other monthly expense. Because of this, a no fee prepaid credit card is about as close to a bank account as you can get, without getting a bank account.
Here are some other benefits of no fee prepaid cards:
Guaranteed Approval: Unlike a bank or traditional credit card, prepaid cards won’t check Chexsystems or your FICO credit score before approving your application. Approval is guaranteed.
No Credit Check: Because prepaid cards do not extend credit, there is no credit check run when you apply.
No Bounced Checks: Because the prepaid card acts as a debit card, there is no risk of overdrawing your account. With no bounced checks, there is no risk of paying a bounced check fee.
No Over Limit Fees: Credit cards charge a hefty fee when cardholders exceed their credit limit. With prepaid cards, you can only spend what you’ve added to the card, so there is no risk of exceeding a card limit.
Free Direct Deposit: For the prepaid cards listed below, they all offer free direct deposit of paychecks, government checks, and other benefits checks. In fact, by using direct deposit, you can get the prepaid card for no fees at all.
No Interest Charges: Since you’re not borrowing money on a prepaid card, you never pay interest. Prepaid cards keep you from spending more than you have.
No Fees or Low Fees: For the cards listed below, they either charge no fees if you use direct deposit, or their fees are very low (and a lot lower than using check cashing stores).
Online Bill Pay: This is a big advantage of prepaid cards. You can use your account to transfer payments to creditors or even other cardholders. It makes paying bills easy and safe, and reduces the risk you’ll miss a payment by mistake.