You have probably heard of a reloadable prepaid debit card also called a prepaid card or prepaid credit card. These cards are typically MasterCard, Visa, Discover or American Express branded cards that you can load or deposit money onto and then can spend the amount that is on the card.

In this economy, many people are increasingly seeking better ways to manage their money and many have found that a prepaid debit card is a good alternative. While a prepaid debit card may not be the solution for everyone, there are many people who find that having a prepaid card saves them money and provides a convenience.

Why Would Someone Want a Prepaid Card?

It is easy to get a prepaid card. You don’t have to have good credit or even any credit history, and you don’t need a bank account. You simply need to be a resident of the US, provide personal information to pass a mandatory identity check, and you can get a card. In this respect, no one is denied a card due to their credit rating or past banking history.

A Cheaper Alternative

Prepaid debit cards can be cheaper alternative for many individuals currently cashing their check and transacting in cash. Many check cashers charge anywhere from 2-5% of the amount of the check to cash a check. And, if someone doesn’t have a bank account, checks, or a payment card, it is not only inconvenient to try to pay bills, but also expensive. Paying for a cashiers check or money order to pay each bill can quickly add up.

Less Risk of Overspending

For parents, a prepaid card may be the ideal solution for their college-bound kid. There is no risk of overspending since it is very difficult to put the card into a negative balance, and there is no risk of creating a bad credit history. Plus, a prepaid card can be a great way to teach budgeting. After all, how many of us are still paying off the credit card debt that we quickly incurred during our college years?

Budgeting Tool

Some people like having a prepaid card to use as a way to budget for non-essential items. Saving up for a vacation or that coveted flat screen TV? An easy way is to have a portion of your paycheck put on the card each pay period, and then you are able to use the funds once you have enough saved. For vacationers, a prepaid card may even be seen as a safer way to travel with money. Travelers can access cash at millions of ATMs worldwide, the card may be used anywhere the brand (MasterCard, Visa, Discover, American Express, etc.) is accepted, and if the card is lost or stolen, the traveler’s liability is reduced to what is on the card versus what is in your bank account. Plus, the cardholder is covered by MasterCard liability protection and lost cards can quickly be replaced.

While prepaid cards are not for everyone and there are fees associated with use of the card, for many, they are a good solution. MiCash offers a low cost prepaid MasterCard to meet this need. MiCash prepaid cards are a good value and provide the convenience, cost savings and safety that many are looking for in a card solution. MiCash is continually looking for ways to provide value to our cardholders and takes pride in providing excellent customer service. If you think a prepaid card might be the answer for you, please consider our prepaid card.

Law enforcement and security experts are trying to stay ahead of thieves who are using a “skimmer” device to steal debit and credit card numbers. While not yet widespread, it is something that you should be aware of. Here’s how it works. Thieves will open up equipment where a credit or debit MasterCard or Visa is swiped and place a skimmer device in the path of the card reader. For example when you push your card into a gas station pump card reader, a skimmer would be installed so that your card skims over and is read by this hacker tool as it is also read by the gas pump as part of your transaction process. Once that happens, and the thieves retrieve your card number, they have stolen it and can use it for purposes of identity theft. They can also make unauthorized purchases with your card.

How can thieves install this device? First they mustbe able to open up a locked panel of the gas pump.  They can do this with a stolen or duplicated master key for the pumps, used by service technicians. They then have to be able to install the device quickly and exit the scene without getting caught on security cameras. They don’t have to go back to the skimmer to get the numbers but can retrieve them with a simple bluetooth wireless transmission from a hidden nearby spot.

For other devices, such as a movie rental kiosk or touch pad card reader, they simply add a skimmer device that blends in physically with the look of the card reader. This can also be done on ATM machines where thieves install a small camera to also record your PIN number via wireless video as you key it in.

Illegal card skimmer attached to blend in.

Red Box DVD rental kiosks have been known to be modified with skimmer devices that are the same black color as the legitimate card reader. According to Brian Krebs, a security expert who tracks these cases,

Customers who suspect their local Redbox may have been tampered with should contact 630-756-8866, e-mail alerts At redbox.com or notify the manager of the store or restaurant that houses the machine.

Card reader devices are continually being modified to stay one step ahead of this thieving technology, but small merchants in particular aren’t always able to update their gas pumps or PIN pad machines on a regular basis.

If you are traveling this summer here are some helpful ways to save money in the following categories.

Hotels

When traveling by car, pull into rest areas and pick up the local hotel guide. They are chocked full of coupons for discounts on hotel rooms. You’ll save 10% or sometimes more on the cost of an advertised room. The discounts can be even greater than the lowest available one at the check in desk, such as the AAA discount.

Book online ahead of time for exclusive online savings. Use sites like Priceline.com, Hotels.com, or go straight to the chain hotel’s website to see what deals are available.

Consider staying at a KOA campground in one of their cabins. While this is not a hotel, it is a way to camp without having to bring a tent or camping gear. But you will have to bring your own bedding. Many KOA campgrounds have all of the amenities of a hotel, such as a swimming pool, restaurants, and even movie theaters!

Food

Stay with friends or family and you will hopefully eat out less. Stay at hotels that offer continental breakfasts. Don’t buy anything from the hotel mini-fridge because the food and drinks are way overpriced.  Do you tend to buy drinks and snacks at gas stations? Why not pack a cooler with snacks such as fruit, trail mix, and water bottles that you fill at home instead of buying? If you aren’t in a rush to get there, order pizza, which is less expensive that even fast food places. Or pack some paper plates and plastic silverware and buy food at grocery stores that you can whip together, like bagged salads and cold sandwich fixings.

Car Travel

Have your tire inflated and you’ll see at least a 5% improvement on your mileage. Drive the speed limit. The faster you go, the worse your gas mileage. Don’t try to save by not running the airconditioning and rolling down the windows, because you will reduce the car’s aerodynamics and cancel out any gas savings, so you might as well stay cool.

While You Are Way

• Turn off your air conditioning or raise the thermostat before it kicks in.
• Put your lights on timers. They are cheap and available at hardware stores.
• Unplug large appliances like TV’s and computers. You’d be surprised how much energy they waste while off. In fact, it’s a good idea to buy those plug strips that you can turn off every night even when you are at home.

A report by the Aite Group, a leading independent research and advisory firm, states that 14% of checking account users would save money by having a prepaid debit card rather than a checking account.

For years, banks in the United States have viewed unbanked and underbanked consumers as a promising segment they could address through traditional checking account relationships. Few banks have realized that new technology and financial products may actually render the checking account relationship less attractive to this customer segment. In fact, at least 14% of checking account holders would be better off switching to a prepaid debit card. (Read the article on Aite’s website).

So who are these people? Their average savings range from zero upwards of $1,900, according to Aite. Generally speaking, the less able you are to maintain a minimum balance, the more likely you are to inadvertently bounce checks and pay overdraft fees and other related fees. The more likely you are to establish an account that may not suit your needs as far as online banking, phone banking, and checking your balance through text messaging. You can manage a prepaid card account all three of these ways.

Flickr image by Teresia

A prepaid debit card allows you to pay for gas at the pump with plastic. However, you may not realize that many gas stations will preauthorize as much as $50 or even $75 on the card if you use a signature transaction instead of a PIN transaction. This is also known as a “block” on the card. The reason it happens is that the gas station doesn’t know if you have enough money on your card to cover your gasoline purchase. Find out more about blocks on the FTC website.

In an MSN Money article British Petroleum spokesperson Sarah Howell explains, “We want to make sure that we’re protected, that we get payment for the gasoline.”

A PIN transaction at the pump (or inside the gas station) is in real time, and avoids the block or hold on your card. However, because signature transactions are “offline” and not in real time you may experience a block for a few hours or even several days until the transactions are processed in a “batch” process at some point in the future.

In the case of a checking account debit card, if you have less than the block amount in your account, you may be hit with an overdraft charge, even though your actual charge is less than your balance. For example, suppose your pump transaction is $27 and you have a $50 balance in your checking account. The pump pre-authorization of $75 causes you to be temporarily overdrawn.

The MiCash prepaid MasterCard protects you from any overdraft fees because whenever you attempt a transaction that is more than the cash you have loaded onto your card, the transaction will be rejected at the point of sale. Not all prepaid cards are alike and some do allow overdrafts and charge overdraft fees.

The bottom line?

• Use your PIN number when paying at the pump, or
• Have at least $75 on your card to cover any pre-authorization “blocks” on signature point-of-sale transactions.

ChexSystems is a credit reporting agency that has been in existence for many years.  ChexSystems offers data to banks (and gathers data from banks) on how a consumer has handled deposit accounts at banking institutions. The company today is managed by eFunds Corporation, a publicly traded company.

Unless you work at a bank or have been denied opening a bank account, you probably haven’t heard of ChexSystems. As a service to help banks limit their exposure to fraud and credit risk, ChexSystems maintains a list of individuals whose previous bank accounts have been “closed-for-cause.” These causes range from outright fraud, such as writing bad checks, to other causes that present a credit risk or potential for fraud. ChexSystem reports on such risk factors as:

• Account holders who report lost or stolen checks and have closed their account for this reason.

• Account holders who have had extended negative balances.

• The number of times a consumer has applied to open a bank account in the past 90 days.

These are flags for the potential for fraudulent activities such as opening and closing accounts for the purposes of writing bad checks. Some analysts also suggest that banks might use the list to weed out unprofitable banking customers such as individuals who keep low balances (which are less profitable for the bank.)

To be sure, Chexsystem helps banks combat the problem of fraud. However, innocent individuals who have not committed fraud, and may have only been guilty of inadvertently bouncing a check, or having a few overdrafts in a short period of time, can wind up essentially “blacklisted” from being able to open a bank account because they are on the ChexSystems list.

Banks decide based on their own policies and procedures when to close an individual’s account and report that fact to ChexSystems.

So, if you are having trouble getting a checking account, you do have alternatives.

David Lazurus of the LA Times reports that Citigroup Inc. is leading the way for credit card companies to impose hefty annual fees to credit card holders. Citi issues cards that did not have annual fees will now get them, under Citigroup’s new rules. Cardholders have little recourse other than closing an account to avoid the fee, unless the charge at least $2,500 a year. Just another reason why many people are better off using a prepaid card (which is not a prepaid credit card) to make purchases and track their spending.

Lazurus finds it horribly ironic that Citigroup’s CEO announced the new fees after expressing his gratitude to taxpayers for bailing out the giant bank at the peak of the financial crisis.

How Citi expressing its gratitude for that act of taxpayer generosity?

It’s slapping a $60 annual fee on many credit cards that previously had no fees and telling customers that if they don’t like it, tough patooties. They can pay off any outstanding balance and take their business elsewhere.

Man, if that’s Citi when it’s grateful, I’d hate to see the company when it’s cheesed.

We agree.

Prepaid Debit Cards are Not Prepaid Credit Cards. In fact, the term “prepaid credit card” is an oxymoron—or a contradiction. Credit cards provide consumers with a line of credit and charge a finance charge for any purchases or cash advances that are made with the card and are not paid back within one billing cycle—typically a month. How high the finance charges can go depends on what card program you select. Leaving a balance owed on a credit card is essentially creating debt that does not have to be paid back in fixed installments but rather “revolves” like a revolving door, as payments to the debt are made and new debts are added to the credit card.

In contrast, prepaid debit cards or “prepaid cards” can be used much like a credit card for shopping online or in person, because they are issued by a bank, like a credit card, and carry most often a Visa or MasterCard logo. The difference is that you are putting your own money on the card and then withdrawing funds as you make purchases with the card. You are prepaying with money up front. Because the money is already sitting in your card account, you are not borrowing money or using credit. And you will avoid any finance charges. You also have the option of selecting whether you want to make a purchase as a signature transaction or as a PIN debit transaction, which allows you to get cash back at the point-of-sale or at an ATM. Additionally, if you try to make a purchase that is more than the available balance on the card, the transaction should be rejected, so you cannot be overdrawn or be hit with overdraft fees. (But be sure to choose a prepaid card program that does not allow you to create a negative balance, because not all prepaid card programs are alike).

Unlike one-time-use prepaid gift cards, reloadable prepaid cards with the Visa or MasterCard logo are designed for repeated use, allowing you to replenish the balance on the card. They are a good choice for people who cannot get a checking account and thus a checking account debit card. They are also a good choice for people with bad credit who have trouble getting a credit card. “Secured credit cards” are another form of credit and are also not prepaid credit cards or prepaid debit cards. They require you to deposit your own money with the card account in order to borrow money against the deposited funds (with potential interest), which remain unavailable to you until you pay off any credit balance and close out the card account.

A new study by economist Michael Flores of Bretton Woods, Inc. shows that prepaid debit cards can actually cost less to use on a monthly basis than low balance checking accounts for some consumers. Flores compared the average fees of prepaid cards against the fees charged by checking and debit accounts that charge for low balances, ATM usage, and overdrafts. He found that banks offering such accounts rack up charges of $200-$350 a year. And consumers who can’t get a checking account without a prepaid card “…must rely on a patchwork system of money orders, check cashing services and bill-payment fees” according to Payment News.

“There is no question that prepaid cards are a much better option for many consumers,” said Flores. “An objective review of the costs associated with these cards compared to costs of alternatives such as basic bank checking account, in addition to the safety and security associated of prepaid cards compared cash, leaves no doubt that prepaid cards are a smarter option for many.”

Flickr Image by TheTruthAbout...

In comparison, by our calculations, MiCash cardholders save as much as $322 annually compared to people who use check cashing services instead of direct deposit to our Prepaid MasterCard. And compared to our competitors, we offer some of the lowest fees around, as well as friendly 24/7 phone customer service.

Financial blogger Alain Sherter at Bnet.com offers a biting commentary on Senate lawmaker’s decision to reject President Obama’s proposal to set up a separate agency to regulate non-banking institutions that provide such things as mortgages, payday loans, and other financial products.

Banks win, consumers lose. I wish I could cushion the blow, but scuttling the formation of an independent agency to protect people against unfair and deceptive financial products (pay-option ARMS, anyone?) counts as a major victory for the industry — and a bitter defeat for just about everyone else.

Many commentators see this as a win for banks and other lenders, and a loss for consumers. While the Senate continues to work on alternatives, it looks like the status quo will be protected.