Gift cards are like cash and make good gifts, in general. However, many gift cards do expire, and they are tied to one store. If the person receiving the card doesn’t shop at that particular store or doesn’t need anything from that store, the card is essentially worthless.
Prepaid cards are like debit cards, except they are not tied directly to your checking account. You can transfer money from your checking account and then give the card to someone or use it yourself to withdraw cash from an ATM or make purchases wherever the card is accepted. You can also continue to use the card by reloading the card or putting more money on it, perhaps month by month. But, when the money on the card is gone, the card is done.
Prepaid cards can be a good deal.
It makes sense to use them
- As gifts
- To budget your spending on a shopping trip or vacation; you can’t overspend and incur debt
- As a way to make sure your kids or college students have a monthly allowance
However, prepaid cards may be a disaster to use. You need to be smart before you use one.
First, prepaid cards may come looking like they have a big bank behind them because they sport the name of Visa or MasterCard, but often they are issued by small financial institutions and, therefore, have fewer guarantees and less wide-spread acceptance.
Second, these cards can have both excessive and hidden fees. Some of these fees include
- A $10 activation fee,
- A monthly fee of $10 and up, and
- A $4 to $5 reloading fee.
Third, there is no law to limit you fraud liability with these cards as there are with credit cards, and there are many instances of numbers being stolen.
A couple mainstream banks and getting into the prepaid card business to make it less expensive and more reliable, and others are following suit. Both American Express and Western Union have reasonable fees and fraud coverage. For example, a Prepaid Card from Western Union® is free to activate online and has no monthly maintenance fees.
Prepaid cards can end up saving you money and being more receiver-friendly gifts, but for now and until the bigger banks get into the prepaid card business you have to be smart and avoid unnecessary fees.
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