1/23/2013 2:15 PM ET|
Are prepaid cards right for kids?
Card Hub compared the available options last year to find which would card work best for a hypothetical teen who receives $100 a month and who makes two purchases a week and two ATM withdrawals per month. The monthly cost ranged from $3 for The Approved Card from Suze Orman to nearly $20 for the ACE Elite Prepaid Visa Fee Advantage Plan.
Papadimitriou said parents should look for cards that:
- Can be loaded for free from a bank account.
- Have minimal monthly fees.
- Don’t charge for purchases or in-network ATM withdrawals.
Cards that fit the bill include The Approved Card, the Kaiku Prepaid Card, and the Bluebird card from American Express and Wal-Mart, said Papadimitriou.
Sekar prefers the Bluebird and Chase Liquid cards for allowances. The Chase Liquid card doesn’t have fees for activating or closing a card, replacing a card, getting paper statements or paying bills -- all charges that are common on other cards. You can load and withdraw money for free, as long as you use a Chase bank branch or ATM. It does come with a $4.95 monthly fee, but that still makes it one of the cheapest cards available, Sekar said.
The Bluebird has no monthly fee, and activation is free if you apply online. Replacements are also free. The Bluebird offers one free ATM withdrawal each month; after that, you incur a $2 fee. Loading from a bank account or with cash at a Wal-Mart is free; loading with a debit card costs $2.
There’s a hitch, though: age limits. Most cards can be opened only by someone 18 or older. The American Express Bluebird allows a parent to create a so-called subaccount for a child, but the child has to be 15 or older. Even the SpendSmart card requires the user to be at least 13. For younger kids, you’d be opening a card in your own name and then giving it to them to use.
Some other factors to consider:
Fraud protection. Most card issuers offer the same fraud protections on prepaid cards that they offer on debit cards, Sekar said, but they do so voluntarily; they aren’t required by federal law. That’s why it’s important to review a prepaid card’s terms and conditions agreement so you understand if and how you’re protected against fraudulent use.
ATM access. Most cards allow you to monitor transactions online, but frequent use of the ATM option could leave you in the dark about where your child is actually spending money. You might want to set limits in advance about how often ATM withdrawals will be allowed, and for how much.
Cost for replacement. Kids lose stuff. (So do parents, of course, but perhaps less often.) If you have a spacey child, beware of any card that charges hefty replacement fees.
Customer service. Some prepaid cards have notoriously bad customer service, which can be a real problem if a bad guy or a merchant error drains the card. Make sure there’s a number you can call for help and that an actual human being answers the phone.
After doing this research, I decided to stick with those crumpled dollar bills -- at least for now. But I think a prepaid card might be a good transition between cash and a checking account when my daughter gets a little older.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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"The kid" speaks:
When I was about five years old, my dad took me to the local bank to open my first savings account. I was given an allowance and a choice to save it or spend it. Back then, my elementary school also had a school banking program that operated on a voluntary basis. My dad would give me an extra fifty cents to deposit each week as well. I loved watching my savings grow! When I was a teenager, I went grocery shopping with dad; I made the list since I did all the cooking and I learned how to comparison-shop. Dad gave me a credit card so I could buy my own school clothes. I became an expert shopper who loved to brag about the bargains I found. He also bought a late model used car for me to use. Since I was expected to put my studies first, I was not pressed into getting a job, and he initially paid for gas & insurance. Did I have a sweet deal? You bet! But I never took any of this for granted and eventually assumed full responsibility for the car and credit cards. He also helped me open a checking account when I went to college and taught me how to keep my account balanced. I moved out on my own in my early twenties and never had to hit Dad up for a loan. Today my dad is in his eighties and asks me for financial advice; I guess he is confident he raised a financially savvy daughter! All I ever learned in school was basic economics (supply vs. demand. etc.) and nothing about personal finance. Thanks, Dad!!!
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