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Save, budget, even Make Money With Today’s Prepaid Debit Cards
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Budget, Save, and even Win Money With Today’s Prepaid Debit Cards
by Spencer Tierney Senior Writer | Certificates of deposit and ethical banking, as well as banking deposits Spencer Tierney is a consumer banking writer at NerdWallet. He has been writing about personal finance since 2013 with a focus on certificates of deposit, as well as other banking topics. He has had his work highlighted by The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among other publications. He is based in Berkeley, California.
Sep 19 September 19, 2017
Written by Amy Hubbard Amy is a former editor in the banking industry and copy editor at NerdWallet. She has previously worked as editor and writer at The Los Angeles Times, the L.A. Daily News and the Hollywood Reporter, among other publications.
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In 1999, entrepreneur Steve Streit created the first retailer-sold prepaid debit card, eventually dubbed Green Dot as a way for teens to buy things online.
Prepaid cards have evolved, and today they are more than just helping consumers spend more money to assist them in doing the opposite: savings and budgeting. With customized budgeting features or creative incentives that help save money, prepaid debit cards allow you to make smart banking decisions, and without the banks.
If you’re looking to compare cards, see our list of .
Here’s how prepaid debit cards could aid you:
Get your budget under control
Prepaid debit cards feature the logo of the card network such as Visa or Mastercard are accepted at retailers almost everywhere, and can be loaded with funds regularly. Most don’t require a credit check. But they’re not ideal for everyone. They’re mainly for people who want a fresh way to manage their budgets or require the replacement of the checking account they have.
A big advantage to most card types is the absence of overdraft programs and their fees that are typically associated with checking accounts. A card balance is a standard spending limit — a card is typically declined with no fee, when there’s not enough money to make a purchase or payment.
Additionally the fact that more prepaid debit cards include tools to help you set goals or budgets than prior. About 54% of the market for prepaid cards tested had these tools in 2016 compared to 30% in 2014, according to . The samples comprised 19 cards from 2014, and 21 in 2016. Each sample represented 90% or more of the debit card market that is prepaid.
Like bank accounts, many debit cards for prepaid use offer online and mobile access to your account via features like check deposit via mobile and money transfer. However, the more comprehensive budgeting tools available on certain cards permit you to:
Customize your spending limits. You can make budgets using spending categories, like clothing and entertainment.
Visualize the history of your purchases. Some cards display pie charts, or other graphic images that help you categorize your purchases.
Set up email and text alerts to be notified if you spend more than a specific amount.
Make use of sub-accounts for managing different household costs. By securing one of your cards’ sub-accounts for a particular kind of expenditure, such as groceries, can make it easier to set the spending limit.
Bluebird by American Express and Akimbo are two cards that provide four to five sub-accounts, that are linked to a master accounts but with separate balances for each account and physical cards.
These can work like an envelope system of today. You can use one card for shopping at the grocery store, another for dining and a fourth for holidays, and so on.
If you have kids, sub-accounts can allow them to use their credit card for spending with a certain amount of money per card which you set.
Beef up your savings (and maybe win cash)
Budgeting is an effective way to manage finances, but you might require a motivation to keep it up.
“Budgeting for the sake of budgeting isn’t very effective,” says Thea Garon, senior manager at the Center for Financial Services Innovation. With prepaid debit cards, she adds, it’s best “when the budgeting experience is linked to the savings experience and aspirational goals.”
The Walmart MoneyCard, issued through Green Dot Bank, has the ability to budget, such as account alerts, however it stands out due to its prize-linked savings program. In August, Wal-Mart as well as Green Dot added a monthly sweepstakes to this card’s “vault.” The vault functions as an account for savings as you are unable to spend money from that balance without transferring it to the balance on the card’s spending.
Saving money in the vault offers you the chance of winning a prize monthly 1 dollar saved is one entry in a sweepstakes, and you could win as many as 500 entry. Each month, the winners are 4,99 that are awarded $25 and one who receives the prize, $1,000.
“Especially in an environment with low interest, the chance to win some money is enticing,” says Mark Matthews the senior director of Walmart Services.
But the real winning isn’t the sweepstakes itself -it’s the motivation to save more money, and it’s effective. The average balance of savings accounts rose over 35% from $413 to $572 between last August to December. According to Walmart estimates, 175,000 customers were registered at the time of June. the usage of the Savings Vault on the MoneyCard has risen 233% from one year ago.
“The goal here is to provide a meaningful mechanism and incentive to build an account over time, to be able to deal with emergency situations,” he adds. Matthews said that all savings have been manually added, since there’s an automatic transfer of savings feature on the MoneyCard.
Prepaid cards have seen a surge in popularity, but …
In terms of a bank option and with the most recent enhanced features, prepaid debit cards have gained popularity since Streit’s original 1999 design. The number of transactions using prepaid debit cards rose by 34% from 2009 to 2012 and 5.6 percent from 2012 to 2015, as per data from the Federal Reserve Payments Study in 2016. Even though growth has been slowing recently however, these cards have an important place in millions of Americans’ wallets.
They are also secure to use, and they are becoming safer. NerdWallet recently analyzed 44 cards from the industry, including major issuers and startups and found all cards were secured. More on prepaid cards will go into effect in April 2018.
However, that doesn’t mean that you should always use prepaid debit cards as the best option. Here are a few possible reasons they may not be the right choice for you:
They don’t help make credit. If you’re looking to boost your credit score, consider the .
It’s not the most cost-effective method of budgeting. Many cards have monthly fees — the average from a NerdWallet analysis was $4.67. Check out some of the below.
Some bank accounts have better incentive to invest in savings. Some online savings accounts have interest rates north of 1percent annual percentage. There are new banks like Chime which offer rewards for saving. The debit card transactions are adjusted up to nearest dollars and those cents automatically go to a savings account. After every week, you’ll receive a 10% bonus on all the cents that have been rounded that you earn, up to $500 per year.
Explore alternatives and compare interest rates.
About the author: Spencer Tierney is an expert in the field of certificates of deposit at NerdWallet. His work has been covered by USA Today and the Los Angeles Times.
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