12/21/2009

Guest Post: How to Avoid Overdraft Fees with Prepaid Debit Cards

When prepaid debit cards began to appear a few years ago, many were skeptical about their use. Why would someone want to take the time to load money on a card when they already possessed a debit card connected to their checking account? However, as time went on, the obvious advantages that prepaid debit cards offer to consumers began to come to light. Leading the list of reasons to obtain a prepaid debit card is the fact that they will never lead to overdraft fees, because they can only use the amount that’s available on the card. Which is why overspending that triggers an overdraft fee becomes impossible.

Today many banks are losing money due to the poor economy and increased regulation. To make up for these losses, most are adjusting their policies to make an overdraft fee more likely, while significantly raising the associated penalty fees.

Most consumers don’t realize that debit cards connected to checking accounts usually come with automatic overdraft coverage, which means that a charge will be paid by the bank, rather than be refused. Banks may market this as a convenience for their customers–a wonderful benefit that means their customer’s card won’t be rejected at the checkout counter–but the hidden danger of that policy is the high overdraft fees that occur with each purchase over the checking account’s balance.

Poor budgeting or faulty math may lead to overdraft fees that can add up in a hurry. It’s like bouncing a check every time the card is used when no funds are present to back the purchase. Consumers are waking up to the realization that the overdraft protection is not an outgrowth of their banking institution’s altruistic attitude, but may be a savvy way to increase profits. It is well documented that banks earn millions of dollars from overdraft fees each year.

Prepaid debit cards are increasing in popularity with consumers who have been burned by excessive overdraft fees. In addition, they like the built-in budgeting protection that a prepaid debit card affords. Users are able to preload the amount they want to the card, with the assurance they won’t overspend their budget when their record-keeping fails. The consumer who knows their tendency to overspend is able to prevent in advance binge buying and non-planned sales fueled by emotion rather than common sense. Using a prepaid debit card to assist with good budgeting while putting an end to high overdraft fees is a dynamic financial combination more consumers are choosing every day.

Jessie's Note: Have you ever used, or known someone that used pre-paid debit cards.  This is a service that I have never utilized before.  I wonder if it would work for loading ones 'jar money' onto it for people who don't like carrying jars/envelopes around.
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5 comments:

  1. I've got a post in the works talking about using them as envelopes. However I don't know anyone who uses them for envelopes.

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  2. I'd never use this service. Overdraft fees are easy to avoid and so are most bank fees. Since I started tracking all my spending 20 months ago, I've never once had an overdraft fee.

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  3. I agree with Canadiansavings.

    I would never use this either.

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  4. Here’s my take on Prepaid Debit Cards (payroll cards) based on my own experience:

    I used to work at Ruby Tuesday and our card was pretty bad. But, from what I hear, it was typical because most cards either have a monthly fee or pretty limited as to the free items. I have worked at Starbucks for about 7 months now and they allow us to have a card called the Money Manager Card. The choice was pretty simple because there are no monthly fees, I can use it on their network (allpoint atms) free at all times, never any fees to buy things (signing or using my PIN and getting cash back if I want…all without a fee or surcharge), no overdraft. Let’s just say I haven’t paid a fee in the entire time I’ve had the card. It’s pretty simple to use it at no charge and I really don’t have to tip-toe around any limited free items like most other cards I have seen have.

    Oh, and don’t lose most payroll cards! If you do, it’ll cost you $$ even to get the replacement sent by the post office. My new card give free replacements when delivered by the post office all of the time. Or, if I want, I can get it delivered by Fedex for $10. Pretty reasonable as I sent something by Fedex a month ago and paid $14!

    My point is, if you are a company and are going to get your employees something, don’t do what Ruby Tuesday did and get something that costs your employees $$$ to use it! I hated them for “giving” us that card…IMHO of course.

    I should state that Walmart has something that is similar sounding to Money Manager Card. I think it is the Money Card or something like that. That card is definitely not the same.

    I did a quick Google search on Money Card when investigating the Starbucks offering and mistakenly clicked on a link to a Money Card “problem” page where people complained about it. Then, I realized that “Money Card” is not “Money Manager Card”.

    Thought I would let you know so you don’t make the same mistake.

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  5. Personally, people need to be responsible and balance their flippin' checkbooks. I work for a bank and I hear every excuse. People don't want to own the problem. They complain about the fees, yet most of them REFUSE to keep a register, use e-mail and text alerts, or simply check their balance every day online. It's not the bank's fault someone can't manage their finances. I'm in agreement the fees are high, but come on people. Get with the program!

    If using a prepaid debit card helps someone sleep easier at night, that's fine. But I've been using a check register ever since I opened up my first checking account 6 years ago and I've never had an overdraft.

    There is even a nifty app for your iPhone called "Balance" that is an electronic register. You can enter your debit card purchase while you're still waiting in line to pay for it and BAM, it's already deducted from your balance. Laziness is no excuse.

    ReplyDelete

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