Oct 6, 2009 7:13 pm US/Eastern
Pre-Paid Debit Cards Can Cost You Extra Cash
NEW YORK (CBS) ―
A warning about those pre-paid debit cards that you can pick up at just about any retailers: they could end up being a lot more expensive than you may think!
Paying for your next purchase could get a whole lot more expensive if you pull out the wrong piece of plastic.
"They take advantage of people, especially in this times," says Dino Bentralla, a chef from Hell's Kitchen who recently lost his job.
Bentrella gets his unemployment benefits on a JP Morgan Chase debit card. He says each week his payment is electronically loaded. One problem is, however, it gets siphoned off even quicker.
"Every time I use it at the ATM is $1.50 and you have it only two free every month," he says. "Do you think that's fair? It's not for me."
Check cashing businesses used to be the only game in town for people who didn't have access to a checking account, but now pre-paid debit cards are tapping into that market place some 80 million consumers strong.
Customers pay up front for the cards, around $10, carrying the MasterCard or Visa logo, hen can use them for purchases anywhere those cards are accepted. Nearly $9 billion was loaded onto the cards last year and the fees to then spend that money can quickly pile on.
First the activation fee, then ATM withdrawal fees, balance inquiries, purchasing fee, monthly maintenance, customer service, even inactivity if you don't use it for 60 days.
All those can eat away at the money frontloaded onto the card.
"The reason they have fees on these cards is because they can! They know these people have very few other choices, they're not sophisticated and they'll probably just eat these terrible fees," said Linda Sherry of Consumer Action.
And plenty of institutions are making money off these fee-rich cards: the banks, MasterCard and Visa, even New York State, which was paid a fee by Chase Bank to be the sole issuer of its debit cards.
Traditional checking accounts, even for undocumented workers, can be found at cheaper rates. For more information on these and other tips:
Click here for a 2009 credit card survey.
Click here for more links from ConsumerAction.org.
Click here for a Power Point presentation on Banking Basics.
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