Billions of dollars will be spent on gift cards this holiday season and a new spin on gift cards that is expected to be popular this year is pre-paid bank cards—or stored-value cards. Pre-paid bank cards are like gift cards, but can be used anywhere credit cards are accepted, allowing the recipient more flexibility in where the money can be spent. Pre-paid bank cards aren’t without their downside, however, and your Better Business Bureau is providing advice on purchasing and using pre-paid bank cards.
According to a recent survey by Archstone Consulting, consumers are expected to spend $25 billion on gift cards this holiday season. Given the current economic downturn, and consumers’ desire for flexible spending options, Archstone predicts pre-paid bank cards will be one of this year’s hottest gifts because recipients can choose to spend the money on “nice to have” items, or if need be, on daily expenses such as gas, groceries or bills.
“Cold hard cash is going to be on a lot of wish lists this year as families find it increasingly difficult to balance holiday spending with paying for essentials,” said Karen Nalven, BBB President. “Pre-paid bank cards can be a great way to give money, but givers and receivers need to pay special attention to the terms and conditions, which can include substantial fees and limitations.”
Not only are pre-paid bank cards a popular holiday gift, they are also a way for people with limited access to credit cards to manage their money—including making it easier to purchase items online. The terms and conditions on these products do vary, so BBB recommends consumers pay special attention to the following details when giving, or receiving, a pre-paid bank card.
Fees, Fees and More Fees
BBB serving Southwest Idaho and Eastern Oregon recently researched a bank card offer and discovered more than 27 different fees ranging from a little under a dollar to almost $20. Fees were attached to contacting customer service, loading more money onto the card, and inactivity. The card even had weekly base fees of $1.95—which ads up to more than $100 a year to use the card. BBB recommends paying close attention to all terms and conditions associated with pre-paid bank cards and is encouraging consumers to ensure they read the fine print and ask about and understand any “hidden” fees.
What if the Bank Goes Bankrupt?
Despite some high-profile failures in recent months, generally bank failures are infrequent, with only 15 banks having gone under so far in 2008. However, for those bank customers, their checking and savings accounts were insured by the FDIC and they didn’t lose all of their deposited money. Unfortunately, the same insurance is not extended to pre-paid cards. The FDIC is currently looking into the prospect of including pre-paid bank cards under the umbrella of protection that covers other bank accounts, but as of now, any money stored on a card is in jeopardy if the bank managing the card goes under.
Protection Question if the Card is Lost or Stolen.
Pre-paid bank cards are often branded by major credit card companies, such as MasterCard or Visa. While credit card companies promise zero or limited liability to card holders if their credit card is stolen or lost, the same protections do not necessarily apply to stored-value cards. Again, BBB recommends paying close attention to the terms and conditions of the card, which should outline the consumer protections allotted to the holder.
Just Like a Credit Card?
In some cases, such as renting a car or reserving a hotel room, a pre-paid bank card might not be accepted. Consumers might also have a hard time using pre-paid cards when paying a deposit for larger purchases.
Some card issuers, but not many, report to a credit bureau, which means that holding a card can potentially have a positive impact on a consumer’s credit score. Because a consumer cannot overdraw on the card or risk not paying a bill on time, there’s no way for a consumer to damage their credit by using a pre-paid bank card either.