Checking Account vs. Prepaid Debit Cards

Checking Account vs. Prepaid Debit Cards: A Comparison

By Kevin / May 16, 2012
checking account vs prepaid debit card


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Does your favorite celebrity endorse a prepaid card? Do all the ads out there for prepaid cards tempt you to get one? If so, it is a good idea to reconsider your options.

While prepaid cards may be the latest rage, the time-tested option of using a checking account is still a superior means of conducting transactions and storing money.

Checking Accounts Actually Cost Less

A 2011 study by Consumers Union analyzed fees at some popular banks and compared them to those of popular prepaid cards. The study showed that savvy customers can end up with very limited fees or even no fees at all with a checking account.

For example, by avoiding non-network ATMs and taking other measures to avoid fees, customers who use Alliant Credit Union’s Free Basic Checking plan would pay nothing at all for an account. At the high end of the accounts that were studied is a US Bank Free Checking account, and savvy customers would spend only $21.25 per year on this account.

On the other hand, the report by Consumers Union showed that, in a comparison of 12 popular prepaid cards, the lowest annual amount that a consumer could spend is $18 with either the H&R Block Emerald card or the Western Union card. Other cards that were studied had yearly minimum fees of nearly $150.

Of course, the range of fees are virtually endless with both checking accounts and prepaid cards. However, this just illustrates the lowest amount that you could expect to pay with a checking account and the same with a prepaid card. Thus, if you are a fiscally responsible person, you’ll generally do better with a checking account versus a prepaid card in terms of fees.

Even if you decide to let loose and spend like a drunken sailor, you’ll still generally do better with a checking account. In the study by Consumer Union, which consisted of 7 checking accounts and 12 prepaid cards, all of the studied checking accounts ended up being cheaper than 9 of the 12 prepaid cards – even if the customer did nothing to reduce fees.

While there are exceptions, a checking account is generally a cheaper option than a prepaid card.

Debit Cards Offer Similar Features As Prepaid Cards

I’m not aware of any banks that do not offer debit cards to their checking account holders. If you know of any that do not, please tell me and I’ll send Chuck Norris their way to change that.

A debit card is virtually the same as a prepaid card in terms of functionality. You can only spend money that you already have and can typically get either type of card with a major issuer’s logo on it. Essentially, either type of card is almost as good as cash. Nowadays, it’s nearly impossible to find places that don’t accept such cards these days.

So, by having a checking account, you’ll generally have the same features as you would with a prepaid card – and plenty more. All of this generally comes at a lower cost, as well, making it a win-win when comparing these card types.

Checking Account Flexibility

For old-school spenders, checking accounts offer much more flexibility than prepaid cards.

Checking accounts offer users the ability to – get this – spend with checks! This means that, if the guy behind you at the grocery store makes a rude comment about how many candy bars you throw onto the belt at the last minute, you can whip out your trusty checkbook and waste a few minutes of his day. Also, if you just like paying with checks for whatever reason, you can use them whether or not you are trying to get under somebody’s skin.

A major bank is also likely to have more in-network ATMs than most prepaid cards offer. That is a major factor to consider if you take frequent cash withdrawals or use ATMs for other reasons.

Checking Account vs. Prepaid Debit Cards: The Bottom Line

Some people do not qualify for a checking account. If this describes you, then a prepaid card is a viable alternative to a checking account, as it will give you some of the same benefits.

For most other people, a checking account is the way to go. Do you really care which rapper-turned financial genius sponsors a card? Probably not. What you likely care about is getting a good service at a reasonable fee – and checking accounts usually beat prepaid cards in this regard.

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