NEW YORK (MainStreet) — Prepaid debit and credit cards take their lumps from consumer advocates, and in many cases, deservedly so. The cards tend to come with high fees and high interest rates (for the prepaid credit cards).
The finance website NerdWallet estimates that the average prepaid debit card comes with $300 in "basic" fees attached for every year of ownership — and that's before activation, cancellation, paper statements and other fees kick in.
The prepaid card industry is trying to change that toxic image.
Is it time? A study from Bankrate.com shows that 26% of cards have no monthly fee and 26% will waive the monthly fee if a certain amount is loaded on the card. Altogether, 52% of the cards either have no monthly fee or will waive it, contributing to a summation that prepaid card monthly service fees, activation fees and fees for calling customer service "have declined over the past year."
"Many of the higher-fee cards seen in the past have been marginalized or even discontinued, while the newer entrants often have more transparent fee structures and in many cases, avoidable fees," says Greg McBride, Bankrate's chief financial analyst. "If you do want to supplement your finances with a prepaid debit card, it's best to assess how you plan to use it before choosing a card, so that you avoid getting hit with extra fees."
Younger Americans are particularly drawn to prepaid cards, with 33% of Millennials using reloadable prepaid cards in the past two years, compared with 25% of the general population, according to TD Bank. "Millennials quickly adapt to new tools and technologies that help them manage money more efficiently," says Tami Farrow, director of retail deposits at TD Bank. "We know from our continued research that Millennials favor debit cards and want to avoid overspending. Prepaid cards provide all the flexibility of a debit card, but with the added control of only spending what you load."