Walmart's Bluebird Card: Has Checking Met Its Match?

With Walmart and American Express teaming up to offer a prepaid card that eliminates most fees, it may seem that checking accounts -- and their rising costs -- have finally met their match. But there are some things you should keep in mind before you opt for any prepaid debit card over a traditional checking account.

Caveats and kudos for the Bluebird card

The Walmart Bluebird card does not charge set-up fees, transaction fees or maintenance fees. As such, it is a viable, low-cost alternative to carrying cash, but there are still a couple of downsides:
  1. You won't be earning interest. By using this card, you'll be letting Walmart and American Express use your money until you need it -- without them paying you anything for it. That may not seem like a big deal with savings account interest rates below 1 percent, and most checking accounts not providing any interest these days. However, when a higher-interest phase of the economic cycle returns, not getting interest on your money might be more of a sacrifice.
  2. You won't be protected by the FDIC. With an ordinary debit card, you would be drawing from money on deposit at a bank, so your deposit would be protected by FDIC insurance. When you pay into your Walmart Bluebird account, the money that Walmart and American Express are holding for you won't be subject to any such protections. Sure, Walmart and American Express are huge, successful companies, but as the financial crisis reminded people, sometimes the bigger they are, the harder they fall.

Still, the Walmart Bluebird card deserves credit for legitimately attempting to provide a service to consumers. This is in sharp contrast to the spate of celebrity-sponsored prepaid cards that have come out over the past few years. The exorbitant fees many of those celebrity-sponsored cards charged made them nothing more than a blatant rip-off.

Weighing the alternatives

As the most recent survey of checking account fees showed, free checking is getting harder to find. Still, there are alternatives to tying up your money in a prepaid debit card without the benefit of FDIC insurance. Before you decide to rely on a prepaid debit card, consider these alternatives:
  1. Search for free checking accounts. The latest MoneyRates checking account fee survey found free checking is down to 35.3 percent of all accounts. This is a minority, but still enough to mean that there are plenty of free checking accounts out there to be found if you look for them.
  2. Try specially targeted accounts. Older customers and students are two groups who sometimes have trouble meeting the balance requirements necessary to get free checking, but several banks have special accounts targeted to those groups. If you are over 50 years old or a student, look into these possibilities.
  3. Try an online bank. The survey found online banks far more likely than traditional banks to offer free checking, so online banks are a particularly good place to look for low-cost banking services.
  4. Use credit -- responsibly. If you are diligent about paying your balance in full every month, a credit card can be a cost-free alternative to carrying cash. Unlike a prepaid debit card, it doesn't require you to put money up in advance, and it will also help you build a credit history.

As prepaid debit cards go, the Walmart Bluebird may be the most cost-effective option out there. Ideally, though, you should be able to find alternatives that beat any prepaid card with a little searching.