website statistics

Prepaid Debit Cards Can Help You Avoid Bank OverDraft Fees

As a recent NY Times article highlighted, overspending on debit cards is now a boon for banks. Many banks are now charging exorbitant fees for any transactions that occur beyond the available balance in a checking account. The article highlighted a perfect example of what’s happening to consumers through Peter Means’ personal experience of overspending on his debit card.

…his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

It’s in a bank’s best interest to charge large fees like this, because they make a lot of money off of consumers’ minor mismanagement of funds. Fortunately, there is an alternative to using a traditional debit card from a bank, called a prepaid debit card.

Prepaid debit cards do away with penalty fees, because it’s impossible to go over your balance. With a prepaid debit card, you load funds onto the card, and since it’s not linked to your bank account, you can’t spend more than you have.

These cards are starting to gain more popularity, because not only are they immune to bank penalty fees, they’re also an excellent budgeting tool. Many people are now auto-loading a set amount each month from their checking account to their prepaid debit card, because it forces them to only spend what’s available on the card. If they underspend during any particular month, they’ll simply have more to spend the following month, because the available balance carries over.

Using a prepaid debit card is a great way to prevent yourself from overspending and incurring large bank fees.

4 Comments on “Prepaid Debit Cards Can Help You Avoid Bank OverDraft Fees”

  • December 15, 2009

    But don’t prepaid debit cards charge an activation fee? That seems to defeat the purpose of not getting charged extra fees? Why not just be careful with your checking account and know how much you have in there versus how much you’ve written checks for? It’s really not that hard.

  • Lsmith
    December 15, 2009

    What a great post! Banks charge exorbitant fees for over-drafting on debit cards, that’s why prepaid options are the best way to go. Prepaid credit cards not only help users manage their money, but they prevent them from overspending and incurring fees.

  • Joseph Sullivan
    December 15, 2009

    Here’s my take from personal experience:

    I used to work at Ruby Tuesday and our card was pretty bad. But, from what I hear, it was typical because most cards either have a monthly fee or pretty limited as to the free items. I have worked at Starbucks for about 7 months now and they allow us to have a card called the Money Manager Card. The choice was pretty simple because there are no monthly fees, I can use it on their network (allpoint atms) free at all times, never any fees to buy things (signing or using my PIN and getting cash back if I want…all without a fee or surcharge), no overdraft. Let’s just say I haven’t paid a fee in the entire time I’ve had the card. It’s pretty simple to use it at no charge and I really don’t have to tip-toe around any limited free items like most other cards I have seen have.

    Oh, and don’t lose most payroll cards! If you do, it’ll cost you $$ even to get the replacement sent by the post office. My new card give free replacements when delivered by the post office all of the time. Or, if I want, I can get it delivered by Fedex for $10. Pretty reasonable as I sent something by Fedex a month ago and paid $14!

    My point is, if you are a company and are going to get your employees something, don’t do what Ruby Tuesday did and get something that costs your employees $$$ to use it! I hated them for “giving” us that card…IMHO of course.

    I should state that Walmart has something that is similar sounding to Money Manager Card. I think it is the Money Card or something like that. That card is definitely not the same.

    I did a quick Google search on Money Card when investigating the Starbucks offering and mistakenly clicked on a link to a Money Card “problem” page where people complained about it. Then, I realized that “Money Card” is not “Money Manager Card”.

    Thought I would let you know so you don’t make the same mistake.

  • prepaid debit cards
    December 15, 2009

    Some of the fees being charge for debit cards by some of the financial institutions borders on extortion or at least that is the perception in the public. Saying that we need to consider the fact that these financial institutions are businesses who wants to make a profit. Now debit cards are indirect competition with credit cards in the financial world. Credit cards make money by charging interest on overdrafts while the debit cards do not. Debit cards make money by asking higher transaction fees. The higher transaction fees can’t compete with the income obtained from interest which leaves the debit cards at a disadvantage. To overcome this financial institutions have adopted a strategy to allow you to spend more money on your debit card than the amount available within your account. For that privilege they slap a heavy fee (fine) on you. This fee closes the gap between credit cards and debit cards. The question to the public is “Is there a difference between the cost of a credit card and debit card?”

Leave a Comment