Prepaid Cards Cheaper than Low Balance Checking/Debit Accounts

The comparative economic analysis was conducted by economist Michael Flores of Bretton Woods, Inc, an expert on financial institutions. The study analyzed a range of payments options available to consumers, and their relative costs and benefits. It also looked at various kinds of prepaid cards, including analyzing the cost and benefits of both general purpose reloadable cards (the kind consumers buy for themselves) as well as prepaid cards tied to direct deposit (these are most often used by state governments to deliver benefits, by companies for payroll, etc.). While smaller studies have been done in the past, this is the first, comprehensive study that compares the costs of prepaid cards in the context of alternative financial tools.

“There is no question that prepaid cards are a much better option for many consumers,” said Flores. “An objective review of the costs associated with these cards compared to costs of alternatives such as basic bank checking account, in addition to the safety and security associated of prepaid cards compared cash, leaves no doubt that prepaid cards are a smarter option for many.”

Prepaid cards have risen in popularity among consumers in recent years. These cards offer many of the same benefits, including fraud and loss protections, as credit cards. However, they access funds pre-paid, eliminating the risk of debt or overdrafting. Prepaid cards open the door to large segments of the population who otherwise might not be able to access our card-based economy or consumers who want to more effectively budget their spending.

“The Bretton Woods report provide hard, empirical evidence behind the notion that network branded prepaid cards improve the lives of many people, by saving them money and time managing their finances,” said Kirsten Trusko, President of the Network Branded Prepaid Card Association (NBPCA). “Prepaid cards afford the consumer the flexibility and security benefits of a traditional credit card without the risk of running up debt and overdraft charges. That’s particularly critical in today’s tough economic climate. Today’s report goes a long way to silencing uninformed critics who want to remove this valuable tool as a financial option for millions of American consumers.”

To gain an appreciation of the costs to consumers using network branded prepaid cards, Flores assembled the pricing of basic FDIC insured checking accounts from the top four banks in the United States and the prices from largest providers of network branded prepaid cards in order to provide a basis of comparison of costs to consumers given similar usage patterns. The analysis also examined recent studies on a typical usage pattern for prepaid card users. The comparison revealed:

A typical consumer with a low balance checking account can expect to pay $200 to $350 annually. These costs include overdraft charges, ATM fees and minimum balance fees.

Consumers without access to traditional banking and without a prepaid card must rely on a patchwork system of money orders, check cashing services and bill-payment fees. The fees associated cost the user from $167 to over $312 annually.

A consumer who chooses a prepaid card instead of a bank account with direct deposit (commonly for payroll or a government benefit) may pay between $108 to $207, a savings of $96 to $146 over a basic checking account.

General purpose prepaid card users can expect to pay $215 to $320 annually

The full text of the report and a bio for Mr. Flores can be found here.