To wrap up our three-part financial literacy series, we take a look at prepaid debit cards. “Celebrity” or endorsed prepaid cards have been quite the buzz lately. It began with Suze Orman, the personal finance expert who released her own branded card in January of 2012. Soon to follow were Kim Kardashian, Hilary Duff, Usher, and Carmen Electra. Now, even Justin Bieber is throwing his hat into the ring. But what are the merits of prepaid debit cards? And are those qualities affected as a result of an endorsement from a familiar face?
First things first – let’s begin with a brief introduction to the fundamentals of prepaid debit cards. The important thing to note about prepaid debit is that these cards do not pull funds from your checking account. Instead, they provide access to funds deposited directly on the card by you or a third party. It works like a gift card. When you make a purchase using a prepaid card, funds are taken directly from the actual balance on the card – not your checking account. And, like a gift card, you cannot spend more than the balance that has been deposited on the card.
Prepaid debit cards can be extremely helpful when managing a tight budget. That’s because they are designed to control spending. Specifically, you cannot accumulate debt when using a prepaid debit card. That’s because, when using a prepaid card, there is a finite amount of money you can spend. The funds are secured upfront when money is deposited onto your card. Prepaid cards do not carry lines of credit, so you don’t have to worry about borrowing funds for a purchase that you’ll need to pay for later. If you do decide to use your prepaid card to make a purchase that is larger than the funds you currently hold on the card, not to worry! Prepaid cards are extremely flexible when adjusting balances. You can add money to your prepaid debit card at any time by transferring funds from your checking account.
There’s been a lot of chatter about the latest trend of celebrity-endorsed prepaid debit cards. From Kim Kardashian to Justin Bieber, you’ve likely heard of celebrities announcing their own, branded prepaid debit cards. While these cards might seem trendy, it’s important to note that you will likely incur additional fees should you choose to use one. These fees include an initial payment to acquire the card, a charge (an often required) for card design, a monthly usage fee, and in some cases, a transaction fee any time you want to add money to the balance on the card. Bottom line? Celebrity-endorsed prepaid debit cards are a hot topic right now, but there is little tangible benefit to opting for one as opposed to a prepaid card issued by your financial institution.