Prepaid debit cards are widely considered an alternative for consumers who do not qualify for traditional checking accounts, but the Pew Charitable Trusts has discovered that most Americans who use prepaids have a checking account as well. This may seem counterintuitive, but Pew's Alex Horowitz explains that consumers often use prepaid cards to help manage their money and follow a budget.
A telephone survey of 613 adults who use prepaid cards at least once a month found that 59 percent reported also having a checking account -- almost always with its own debit card. This suggests that many consumers see prepaid cards as a complement for traditional bank accounts. Consumers loaded more than $64 billion onto the cards in 2012, up from about $57 billion in 2011. Nearly three-quarters of users are younger than 50. Pew's 2012 prepaid card study found that the cards were mostly offered by financial companies like Green Dot Corp. and the NetSpend Corp. Now, however, large banks such as JPMorgan Chase and Wells Fargo also offer them.
In some cases, the cards are more accessible and more affordable than basic checking accounts; but there are some disadvantages: fewer consumer protections, lack of regulation, and unclear coverage by federal deposit insurance. Prepaid cards also carry additional fees, such as monthly service fees and transaction fees, but Pew reports that these are becoming less common.
Consumers who are considering a prepaid debit card should research what fees they are most likely to incur and whether funds are protected from unauthorized transactions. The Electronic Fund Transfer Act requires that checking accounts limit consumer liability if a card is lost or stolen, but prepaid cards do not have such a requirement.