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The right way to use prepaid cards

There are ways to reduce the fees you'll have to pay when you use one of these cards.

By MSN Money Partner Jan 27, 2012 1:08PM

This post comes from Jeanine Skowronski at partner site MainStreet.


MainStreet on MSN MoneyPrepaid debit cards are widely criticized for charging high fees and offering few incentives to consumers. The criticism, in many instances, isn't unwarranted. A study conducted by credit card ranking site NerdWallet found that some prepaid products can cost users up to $300 a year.


Still, they remain popular among the unbanked and those who have poor credit. Here are a few ways those using a prepaid card can minimize the fee damage:


Set up direct deposit. A growing number of products will waive certain fees or charge lower ones if a person's paycheck is being deposited onto the card. Wal-Mart, for instance, waives the $3 reloading fee associated with its MoneyCard, and Western Union waives the $4.95 fee tacked onto its prepaid Visa when direct deposit is set up. Post continues below.

Replenish declining balances. Other issuers will let you bypass fees if you load a certain amount of money onto the card in a 30-day period (which can be achieved by using direct deposit). For example, Mango Money's Prepaid MasterCard credits users their $5 maintenance fee if they load at least $500 onto the card during that period, and Capital One waives its $4.95 fee for the same reason.


Only use ATMs in your network. Similar to banks furnishing traditional checking accounts, some prepaid issuers waive ATM fees if you use machines in the networks they partner with. Green Dot, for instance, doesn't charge when its cardholders use MoneyPass ATMs to withdraw their money. Out-of-network withdrawals cost $2.95. Suze Orman's Approved Card doesn't carry a fee when cardholders use AllPoint ATMs to withdraw their money, as long as the cardholder has directly deposited $20 onto the card in the past 30 days.


Go green. Paper statements, by and large, are going to cost you, while you can see them for free online. Additionally, some issuers won't charge when you make payments electronically. Capital One's prepaid card, for instance, charges 95 cents to pay bills by paper, but doesn't charge a dime when you pay electronically.


More on MainStreet and MSN Money:

Jan 27, 2012 5:29PM
Everyone seems to be issuing prepaid cards these days, making all kinds of claims along the way, ranging from mildly untruthful to plainly absurd. But the latest controversy involving Suze Orman's prepaid card was a more instructive one, I guess because it attracted more interest. It confirmed my belief that the vast majority of Americans are very ill informed about this type of payment card, a fact which Orman unfortunately tried to exploit, even as she was denying it. The bottom line is that prepaid is the best card only if no other option is available to you. It does not help you improve your credit score, in fact it does not affect it in any way. The same is true for debit cards, which are, however, a much better, and cheaper, alternative for consumers who are not cut off of to the financial system, even if they have to pay a monthly fee for it. So get a credit card, if you can, use it within your means, so that you can pay it off in full at the end of each month, and you'll be better off in the long run.
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