Since 2005, the popularity of an alternative to classic banking has emerged: the prepaid debit card. Many individuals have decided to drop their regular bank account and go with this option. Is it really worth it? Do you really save on fees? Is it that convenient? And more importantly, should you switch your bank account to a prepaid debit card?
A recent study from Breton Woods made an interesting comparison between the 2 banking options. It shows that in some cases, the prepaid debit card can turn out to be a great solution. In fact, they even claimed that “consumers who opt to use a network branded prepaid card could save 35-70% on fees as compared to low balance checking and debit accounts, making prepaid cards a far more valuable, cost-effective financial tool for many.”
The comparison reveals that:
- A typical consumer with a low balance checking account can expect to pay $200 to $350 annually in the form of overdraft fees, ATM fees, and minimum balance fees.
- Consumers using a system of money orders, check cashing and bill payment services can pay anywhere between $167 to $312 annually in various fees.
- A consumer using prepaid debit cards without direct deposit can pay $215 to $320 in annual fees.
- Users of prepaid debit card with direct deposit may pay between $108 to $207 in annual fees. For customers in the same income zone and usage patterns, this option may save a consumer about $96 to $146 over a basic checking account.
However, I would say that if you tend to manage your bank account responsibly, it will be cheaper for you to use a regular account. While the prepaid debit cards are easy to use and can help you manage your budget (since you can’t spend more than what is on it), the overall fees are quite high compared to a regular checking account (keeping in mind that you should avoid overdraft and NSF fees). Plus, many retailers, restaurants, professionals and so on use debit machine from Moneris or other companies for you to avoid ATM fees.
Which option is best for you?
If you want to make an educated choice, I suggest you take the time to read the Breton Woods study on this topic. Personally, I still prefer the regular checking account as it is easier for me to manage (I don’t have to load my card with money every month) and I pay minimal fees (because I always meet the minimum balance requirement). Lastly, I should mention that the manner by which you manage your budget / cashflow could influence which choice is best for you.