What Types of Fees Apply to Prepaid Debit Cards?

Prepaid debit cards are not actual credit cards. Instead, the user simply deposits a sum to be placed on the card initially. Once this sum is used, the user can elect to refresh the funds of simply close the card. Even though there is no interest charged on any of the transactions made in this manner, there are still fees that can make this form of financing very costly if overused. 

Activation Fees

You will pay a fee to activate the card. Though this fee is typically small, it is still money that you could have spent elsewhere if you did not transfer the funds to the card. For example, some prepaid debit cards will charge you 2% of the total sum you intend to move to the card in an upfront fee. If you plan on depositing $1,000 for a vacation, you will have $20 less to spend once you get there. When this fee is added to the other fees you will pay to have the card, the option will seem much less appealing. 

Transaction Fees

The prepaid debit card will generally be able to be used at any location with a credit card processing machine. This includes most retailers, restaurants and websites. However, just because the card can be used doesn't mean there will not be a fee. Some retailers will charge you a fee or require minimum transaction amounts if you wish to pay with the card. Some retailers may refuse to accept the card, but this is less common than the retailer exacting a fee instead. At times, the debit card company itself may even charge you a transaction fee. This is particularly true if you plan to use the card to get cash from an ATM at any point in the future. 

Renewal Fees

When you spend the entire limit on the card, you will have to renew the card with more funds in order to keep using it. In an ideal world, the company would allow you to do this free of charge. Unfortunately, you will likely be charged another activation fee as high as the first one you were assessed when you opened the card. Some debit cards will even charge you more to reload the funds if you need to do so hastily. You will receive no real benefit from spending this money other than the ability to continue to make purchases with the debit card.

Alternatives to Prepaid Debit Cards

If you are going to pay fees in order to charge transactions, why not use a credit card instead? True, interest rates can make the purchases more expensive. If you pay down balances each month, you will reduce the impact of high rates. Further, each time you pay down your credit card balance on time, you will at least receive the benefit of a higher credit score. Paying the interest is still spending money, but you will get something in return instead of just flushing the fees away to a debit card sales company.


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