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Budget, Save, Even Win Money With Today's Prepaid Debit Cards
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Budget, Save, Even Earn Money With today's prepaid debit Cards
By Spencer Tierney Senior Writer | Certificates of Deposit ethics, ethical banking, bank deposits Spencer Tierney is a consumer banking writer at NerdWallet. He has been writing about personal finance since 2013, with a focus on certificate of deposit as well as other banking-related subjects. He has had his work covered on The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among others. He is based in Berkeley, California.
Updated September 19, 2017
Written by Amy Hubbard Amy is a former banking editor and copy editor for NerdWallet. She has previously worked as an editor and writer in The Los Angeles Times, the L.A. Daily News and the Hollywood Reporter, among other publications.
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In 1999 the entrepreneur Steve Streit created the first retailer-sold prepaid debit card, later dubbed Green Dot to provide an option for young people to shop online for items.
Prepaid cards have evolved in the past, and now they go beyond helping consumers spend more money to assist them in the opposite direction budgeting and saving money. With budgeting options that can be customized, or innovative incentives to make money more efficient and save money, prepaid debit cards make it possible to manage your money smartly, without having to go through the banks.
If you're eager to look at different cards, take a look at our selection of .
Here's how prepaid debit cards can help you:
Get your budget under control
Prepaid debit cards bear the logo of the card network like Visa or Mastercard, work at merchants nearly everywhere and can be loaded with money regularly. Most don't require a credit check. But they're not for anyone. They are primarily for people who are looking for a new way to budget or need a replacement for a checking account.
The main benefit of prepaid cards is the lack of overdraft services and their associated fees traditionally found on checking accounts. The balance of a card is a standard spending limit -- a card will typically be declined with no fee, when it's not enough to cover the purchase or payment.
In addition, more prepaid debit cards come with tools to set budgets or goals than they did previously. Around 54% of the market for prepaid cards sampled had these tools in 2016, as compared to just 30 percent in 2014, as per to . The samples included 19 cards from 2014, and 21 in 2016 and each sample was a representation of 90% or more of the prepaid debit card market.
As bank accounts, many debit cards for prepaid use offer access online and via mobile to your accounts , using options like mobile check deposit and money transfers. But the more in-depth budgeting tools on some cards allow you to:
You can customize your spending limit. Budgets can be created with spending categories like apparel and entertainment.
Visualize the history of your purchases. Some cards have pie charts, or other graphic images which categorize your expenditure.
Set up email and text alerts to be notified whenever you spend more than a specific amount.
Use sub-accounts to manage different household costs. Designating one of your card's sub-accounts for a particular type of expense, like grocery shopping, will make it simpler to set an amount limit on the expenditure.
Bluebird from American Express and Akimbo are two cards that offer five to six sub-accounts that are connected to a master account but with separate balances for each account and physical cards.
They can function as a modern-day envelope system. Use one card for grocery shopping and another for dining out, a third for vacations and so on.
If you have kids, sub-accounts can allow them spending privileges with a set amount of money per card, which you decide.
Make the most of your savings (and possibly win money)
Budgeting is an effective way to manage money, but you might need an incentive to continue it.
"Budgeting for the sake of it isn't really effective," says Thea Garon who is the senior manager of the Center for Financial Services Innovation. When it comes to debit cards with prepaid cards, she adds, it's best "when the budgeting experience is linked to the financial experience, as well as aspirational objectives."
The Walmart MoneyCard that is offered from Green Dot Bank, has budgeting features such as account alerts, however it is distinguished by its savings program linked to prizes. In August, Wal-Mart as well as Green Dot added a monthly sweepstakes for the card's "vault." This vault functions as a savings account in that you can't spend funds from the balance, without moving it to the card's spending balance.
Saving money in the vault gives you chances to win prizes every month one dollar of savings equals one entry in a sweepstakes and you can win more than 500 chances to win. Each month, you can win 499 prizes who are awarded $25 and one who wins the jackpot, $1,000.
"Especially in an environment with low interest, the chance to win a little bit of money is exciting," says Mark Matthews who is the director of senior management at Walmart Services.
The real prize isn't in the sweepstakes- it's the incentive to save more and it's working. The average savings account balance was up by more than 35%, from $413 to $572 between the end of August until December. According to Walmart the number of people who had participated as of June, and usage on MoneyCard's Savings Vault on the MoneyCard has skyrocketed 233% over one year ago.
"The goal here is to provide a meaningful mechanism and incentive to accumulate an account over time in order to deal with emergencies," he adds. Matthews said that all savings are manually added to the account, as there is the inability to automate savings transfers on the MoneyCard.
Prepaid cards have exploded in popularity, but ...
For banking options as well as with more modern added features, prepaid cards have seen a surge in popularity since Streit's inspiration in 1999. The number of payments for prepaid debit cards grew by 34% from 2009 to 2012 and 5.6% from 2012 to 2015, based on the Federal Reserve Payments Study in the year 2016. Although growth slowed recently but the cards still hold the place of thousands of Americans' purses.
The cards are also relatively secure to use, and they are becoming safer: NerdWallet recently looked at 44 cards across the market, including major issuers and upstarts, and found all the cards are insured. Prepaid cards will take effect in April 2018.
However, that doesn't mean that you should always use prepaid debit cards as the best choice. Here are a few reasons they might not be right for you:
They don't help make credit. If you want to improve your credit score, consider a .
It's not the best way to budget. A lot of cards charge monthly charges -- the average from the NerdWallet analysis was $4.67. You can see a few of the below.
Certain bank accounts offer better rewards to help save. Some savings accounts on the internet have rates of interest in excess of 1percent annual percentage. There are new banks like Chime that reward you for saving. Your debit card purchases get rounded by the closest dollar, and those cents automatically go to a savings account. At the end of every week, you'll earn a 10% bonus on the total amount of cents rounded up that you earn, up to $500 in a year.
Explore alternatives and compare interest rates
The author's bio: Spencer Tierney is a writer, and NerdWallet's expert on certificates of deposit. His work has been highlighted by USA Today and the Los Angeles Times.
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