There's no doubt that prepaid debit cards are growing in popularity among U.S. consumers, particularly those who don't have traditional bank accounts.
But these cards carry fees, and new research reveals that a startlingly high number of consumers aren't aware of them. According to a new survey from CouponCabin.com, nearly six-in-ten -- 58 percent -- U.S. adults said they are not aware of fees associated with prepaid debit card use.
In addition, 27 percent of U.S. adults agree they are more likely to use a prepaid debit card now than before the recession. This survey was conducted online within the United States by Harris Interactive.
"More consumers are using prepaid debit cards these days, but like with any financial decision, users need to be aware of the pros and cons of using these cards," said Jackie Warrick, President and Chief Savings Officer at CouponCabin.com. "Even as new consumer protections are sought, users need to do their homework to ensure that prepaid debit cards are a good fit for their personal budget and lifestyle."
In May the Consumer Financial Protection Bureau (CFPB) announced it is previewing proposed rules to protect consumers in the prepaid card market. The agency is seeking input on how to ensure that consumers' funds on prepaid cards are safe and that card terms and fees are transparent.
How prepaid cards are used
Forty-two percent of U.S. adult consumers say they have purchased or received a prepaid debit card for personal use. When asked how they have used their prepaid debit cards, they replied:
When it comes to opinions on prepaid debit cards, consumers are evenly split. Forty-four percent have a negative opinion of the cards, while 43 percent view the cards positively. Of those who have a positive opinion, they report they like prepaid debit cards because it's safer than cash, helps them budget and they don't have to worry about overdraft fees or accumulating credit card debt.
There are some downsides to prepaid cards and those negatives also showed up in the survey. Twenty-five percent of respondents said the cards don't help build a credit score and 24 percent cited too many fees.
Obviously, a fair amount of research is required before selecting a prepaid card. Consumers should look into all the fees, deadlines, contracts and more before signing up. The fees and fee schedule can vary greatly from card to card, so make sure to pick one that best fits your lifestyle and budget.
Warrick also suggests keeping credit cards active, even if you aren't using them. Since prepaid cards don't affect your credit, having an open credit card account will be helpful.