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Direct deposit your refund to a prepaid card

It's a way for those without bank accounts to get their tax refunds sooner.

By Karen Datko Mar 26, 2010 10:33AM

This post comes from partner blog The Dough Roller.


Direct deposit of a tax refund is great news for some. You get your refund added to your checking account in about two weeks rather than the six to eight weeks it takes for a paper check refund. And you avoid the hassle of schlepping to your bank to deposit the refund check.


For those who do not have a checking account, however, the benefits of direct deposit are elusive. According to the FDIC, about 30 million U.S. households are underbanked or unbanked, so this is no small issue.


To make matters worse, those without bank accounts often turn to tax refund anticipation loans. These short-term loans come with extremely high interest rates, and are really no better than a payday loan. While they do give you access to your refund immediately, the fees can eat into a substantial portion of it. Fortunately, there is an extremely low-cost alternative -- having your tax refund deposited on a prepaid card.


Now, I personally prefer a checking account over a prepaid card. However, if you aren’t able to get a bank account or simply choose not to have one, a prepaid Visa or MasterCard is the best option. What many don’t know is that it is easy to have your tax refund deposited directly to a prepaid card. You get your refund quickly just as if you were using a checking account, and you avoid the aggravation of dealing with a paper check.

How to set up direct deposit. It’s easy to have your tax refund added to your prepaid card. As with direct deposit to a checking account, you need two pieces of information: the routing number for the card, and the account number. The key here is that the account number is not necessarily the number on the face of the prepaid card. To get the routing number and account number, simply contact the company that issued the prepaid card you’ve decided to use. Some even have online tools that can generate the routing number and account number for you.

How to get a prepaid card. If you don’t have a prepaid card, but want to take advantage of direct deposit, it’s easy to get a card. In fact, applying is easier than getting a credit card or bank account because there are no credit checks or ChexSystems inquiries. In fact, so long as your identification information checks out, like you Social Security number, approval of prepaid cards is guaranteed.


When deciding on a card, you should make sure the card offers direct deposit (most do) and very low fees. Two cards that are worth considering are the Mango Prepaid MasterCard and the Green Dot Prepaid MasterCard. With Mango you can use the card for purchases for free as long as you deposit at least $500 on the card each month (and it’s only $5 a month if you don’t). Green Dot is one of the few cards that offers free ATM withdrawals at more than 15,000 locations.

You should be very skeptical of prepaid cards offered by tax preparers. The problem with these cards is that they often come with extremely high fees. For example, H&R Block offers the Emerald Prepaid MasterCard, but there have been complaints about the high fees associated with the card. The key is that whatever you decide, make sure to read the fine print and understand what fees you’ll have to pay.


One final note: If you have a large refund coming and you want to avoid making such a large interest-free loan to Uncle Sam this year, talk to your employer about changing your W-4 form. You may be entitled to claim more allowances, which would reduce the amount of money withheld from your taxes.


However, if your tax refund was unusually large because of a one-time credit, such as the homebuyer’s tax credit, you should hesitate before making changes because if you don’t have enough money withheld, you may have to pay extra taxes and penalties.


Related reading at The Dough Roller:



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