Alternatives to checking accounts surge in popularity

It is difficult to differentiate between the prepaid debit cards from the debit cards and credit cards and the only way you can differentiate is due to the high fees.

After the new card regulations have come into force, overdraft rules and banking rules have changed a great deal. Prepaid cards are one option that some of the biggest banks are now exploring. This is a way to regain lost revenue due to the fresh limits on the fees. The prepaid cards are now being lauded as the best alternative by the prepaid card associations; however, consumer groups warn that they could prove to be very expensive.

There has been a steady growth in the prepaid card sector since 2005 and 2009 as the number of prepaid card users have risen from 700,000 to around 3.4 million. This growth is likely to continue according to reports from the Wall Street Journal. The prepaid card users are expected to reach 7 million users by 2014. However, these figures are not inclusive of the payroll cards that are very similar to prepaid cards. When combined, this sector could easily account for over 9 million customers in the US alone.

Most of these prepaid cards are offered by the non-banking sector. These cards are generally offered in stores and offer instant payday loans, grocery stores, and at convenience stores. There are many big-box stores like target and Wal-Mart which offer branded prepaid cards. Bretton Woods Inc., which is a consulting firm that was hired by the Network Branded Prepaid Card Association, has reported that consumers who own prepaid debit cards will ultimately pay less than half by way of fees when compared to customers with the standard checking accounts. The reports also claim that these prepaid cards were the ‘money management tool’ as consumers will only be able to spend the money that is loaded onto the card. These are also a good alternative for those that don’t use the traditional banking accounts.

The Consumers Union has argued against the prepaid cards stating that they tend to be far more expensive when compared to checking accounts. Out of the 12 cards that were studied, 9 were far more expensive than the checking accounts. This analysis also goes to show that most prepaid cards have the assumption that all the checking accounts charge customers’ overdraft fees. But with the Dodd-Frank consumer protection in place, prepaid cards are far more expensive option than checking accounts.

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