Apr 20, 2009 2:13 pm US/Eastern
Shoppers Saving With Pre-Paid Credit Cards
BOSTON (WBZ) ―
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The use of prepaid cards is soaring. Last year, just over $4 billion was loaded on them. This year, that number is expected to jump to $7 billion.
WBZ
It seems like everyone is looking for better ways to manage their money today. Instead of using credit cards, many consumers are turning to prepaid cards which cap the amount they can spend.
Amanda Morin wanted to cut her grocery bill so she adopted this strategy, limiting herself to how much she had loaded onto the card. "We've been pleasantly surprised in that we actually have come under budget, and saved $150 a month."
The use of prepaid cards is soaring. Last year, just over $4 billion was loaded on them. This year, that number is expected to jump to $7 billion.
In the past, these cards were often used by people who might be experiencing credit problems. Tim Sloane of Meractor Advisory Group explains, "These cards, because they're loaded with the consumer's own funds, require no check of balances relative to credit background."
The difference today is that more shoppers like Amanda are using these cards to control spending regardless of their credit status.
The cards are available at banks and major stores, and are backed by Visa, MasterCard, and Discover. You use them exactly as you would a regular credit card, except you can't exceed the amount you have deposited. It is important to consider any fees involved to make sure you will save money in the long run.
Sloane says consumers need to remember that they are paying money upfront to acquire the card. "Then there is a range of potential fees on the back end of that card that might be around a reload fee or a free for using it at an ATM."
Prepaid cards come with the same zero liability protection that traditional credit cards do. That means that if the card is lost or stolen you will be protected, as long as you report it in a timely manner. There may be a replacement fee, however.
The process to dispute charges for unauthorized purchases, or defective merchandise is harder. Sloan explained, "You have to look at the fine print that is associated with the card to understand what the issuer determines their role is in working out a dispute with an individual account."
Amanda hasn't had any problems, and likes how these cards are helping her manager her money. "You don't have to worry about whether there are funds in your bank account. You just slide it and use it like any other card."
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