A Checking Account is Better Than a Prepaid Debit Card

Why a Checking Account is (Almost) Always Better Than a Prepaid Debit Card

By Christine Layton / December 11, 2013
Checking Accounts or Prepaid Debit Cards


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Prepaid debit cards are almost everywhere these days. Many of the major banks and credit card companies have begun offering prepaid card options as more and more Americans seek the convenience of a check card without the commitment of a checking account.

The freedom of a prepaid debit card is very attractive, especially if you don’t qualify for a checking account because of bad credit or have a tendency to go into overdraft. But are prepaid cards really a better option than a checking account? If you’re just looking to save money on fees, the answer is no.

Prepaid Cards Have More Fees!

Many people who choose to use a prepaid debit card do so because they believe that checking accounts come with too many fees, and that many of those fees are hidden. Prepaid cards have a reputation for being more upfront about the fees they charge.

But as it turns out, both prepaid cards and traditional checking accounts carry about the same number of fees. A study of 53 prepaid debit cards and 30 checking accounts offered by major banks found that both the cards and the checking accounts charged about 42 different fees.

With the prepaid debit cards, however, those fees are much more difficult to avoid.

With the exception of the monthly maintenance fee, checking accounts charge the majority of their fees for things that many checking customers don’t use regularly – like wire transfers, safe deposit boxes, and traveler’s cheques.

Prepaid cards, on the other hand, charge fees for the most basic account functions:

  • Opening or closing the account;
  • Using the ATM;
  • Adding funds;
  • PIN-based transactions;
  • Signature transactions;
  • Card replacement;
  • Adding a new card to the account;
  • Card declines; and
  • Even checking your balance at the ATM or speaking to a customer service representative can cost you a fee.

Want more fees on top of that list?

You’ll also pay a separate fee for every ACH decline (when you set up an electronic payment from your prepaid debit card but there are insufficient funds to complete the transaction) and every out-of-network ATM decline! You may even incur the monthly maintenance fee you were looking to avoid.

If that monthly maintenance fee is the reason you don’t wish to open a regular checking account, we urge you to keep a few things in mind:

  1. It is often easy to avoid. Many banks will waive their monthly fee for your checking account if you arrange for a regular direct deposit into the account. This can include your paycheck or any other payment you receive regularly.
  2. The additional fees charged for a prepaid debit card will almost always exceed the monthly maintenance fee on a checking account.
  3. Many prepaid debit cards still come with a monthly fee.
  4. Your bank provides and convenient place to avoid check cashing fees.

So the argument that prepaid cards save money because they don’t come with a monthly fee (although many do) is not a reason to switch to prepaid debit cards from a regular checking account.

Additional Services Will Cost You

Prepaid debit cards may also charge you for online banking and online bill pay, which are features that come standard with traditional checking accounts. Checking accounts generally offer more services and features than prepaid cards do, including a more robust online banking interface.

So can you save money with a prepaid debit card? Sure, the fees may be lower than the $35 or so that most banks charge for overdraft. But the fees charged by prepaid debit cards are many, and they add up fast enough to make these cards a poor value. That’s why prepaid debit cards should almost always be a last resort – and only until your credit improves enough that you can qualify for an actual checking account.

Contributor Note: Natalie Cooper contributed to this article. She provides consumers with personal finance advice ranging from budgeting to mortgages. You can find her writing at Purechecks.com, a leading check printing company of designer personal and business checks.

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone. Additionally, the opinions of the commenters are not necessarily the opinions of this site

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