RSS Facebook Twitter LinkedIn

Featured Advisor

Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

Click to see the full profile

Share |

The Appeal of Prepaid Cards

 Prepaid cards make it easier to avoid debt that comes from using credit cards or debit cards.   

| BY Kent McDill

Credit cards and debit cards with overdraft protection make it easy to spend more money than you have.

That’s one of the reasons Millennials and others are falling in love with prepaid spending cards.

According to Business Insider and its BI Intellligence unit, prepaid cards have not replaced credit cards or debit cards, but are a growing instrument in the payment industry. In 2003, there were 800 million transactions using prepaid cards worth $20 billion. In 2012, there were 9.2 billion transactions paying for $220 billion in products and services, and estimates are that prepaid cards will pay for more than $300 million in transactions in 2016.

Millennials and Gen X Americans are responsible for most of the prepaid card use, as much as 80 percent as of 2013. Prepaid card users often are on the low end of the earning spectrum, with 28 percent of those from 2013 earning less than $25,000 per year. However, 27 percent of those prepaid card users were earning more than $100,000 per year.

Pew Charitable Trust estimates 23 million Americans use prepaid cards regularly today.

 Why is there such a great push toward prepaid purchasing cards? BI Intelligence points to three reasons: the desire to avoid overdraft fees, the desire to avoid debt, and the desire to avoid check cashing fees.

Prepaid cards initially were targeted for consumers who did not have bank accounts, but today prepaid cards are being purchased by traditional banking customers as well. Although there are fees related to the purchase and use of prepaid cards (per transaction or monthly, depending on the card), users cannot spend more than what is on the card. Unlike credit limits on credit cards, users are only spending money they actually have, as opposing to spending money they will acquire in the future, which is what credit card use is based upon.

Debit cards, on the other hand, access funds from an account like checking or savings, but those accounts often allow for overspending with overdraft protections that cost money to set up.

“A lot of people use these cards to keep from going into debt and avoid overdraft fees,’’ said Pew’s Consumer Banking Project Director Susan Weinstock to NBC News. “They have been burned by their checking overdraft fees and they want a product they can put money on, spend it down and don’t have to worry that they are going to spend more than they have.”

Millennials reportedly have an aversion to traditional banking structures, and prepaid cards allow them to avoid those structures for everyday needs.

There is bad news related to prepaid spending cards, and it comes from the federal government. The consumer Financial Protection Bureau is looking to set regulations regarding fee structures for prepaid cards, which might make them less attractive to issuers.



About the Author

Kent McDill

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.