How to protect a prepaid debit card
It's like cash, only better. Or so say the marketers.
Prepaid debit cards are usable wherever credit cards work, protect your privacy, and are - of course - compact. Not surprisingly, use of the cards has been soaring: Mercator Advisory Group estimates that consumers loaded $77 billion on these cards in 2012, and expects an increase to $168 billion by 2015.
But there is a downside to prepaid cards: All that privacy and ease of use comes with heightened risks. If you lose a card, you stand to lose whatever money is loaded onto it. Even if your card is stolen, you have fewer protections under the law than you would with a credit card. And as a recent $45 million cyber heist showed, prepaid cards in the wrong hands can be a menace.
For thieves or money launderers, prepaid cards "are much easier to turn into cash than credit or debit cards," said Avivah Litan, a security analyst at Gartner. "I just really don't like them. I'd just rather have the cash."
There are also hefty fees associated with prepaid cards. Banks charge varying amounts for issuing the cards, reloading them with additional funds, and even checking balances.
Still, for plenty of people, prepaid cards offer advantages that aren't available elsewhere. Parents give prepaid cards to their teenaged children as a way to keep tabs on how much they are spending. Prepaid cards are also handy for travel and gifts. And for people without bank accounts, or spotty credit records, they're extremely useful.
“I don't see a risk for consumers who want to use prepaid debit cards as long as you follow normal security procedures. It's a great tool for the honest consumer," said Joe Petro, a managing director at Promontory Financial Group and formerly a senior member of Citigroup's security and investigations operations. He can point to numerous instances where prepaid cards were used to commit financial crimes, he added, but "the nefarious use of it is something that I'm not sure affects the daily activity of a consumer. That's not what the thieves are after."
If you want to keep a loaded prepaid debit card, experts have several suggestions for how to make it safe, and financially sensible.
-- Pick a PIN. Use a PIN on the card, and keep that PIN secure. It shouldn't be written down elsewhere in your wallet, or worse, scribbled on the back of the card. And when you are entering the number, position yourself so others can't see or photograph it.
"I think consumers are very secure if they keep their PINs secure and keep the cards secure," said Litan, adding, "Try not to use a PIN that you use everywhere else."
--Read the fine print.Shop around for reasonable fees, says the Consumer Financial Protection Board's Office of Consumer Education and Engagement. Issuers of these cards charge varied fees for everything from reloading the card to balance inquiries and using out-of-network ATMs.
-- Know the rules. To minimize the hassle and financial hit if your card is lost or stolen, "find out the rules for replacing your card," the CFPB office said. "Write down the card number, security code and customer service number and keep it in a safe place."
--Be return-ready. Since some stores require that funds be added back to a prepaid card if you return an item, be sure to hold onto your prepaid card until you are certain that you will not be returning anything you bought with it.
-- Keep a lid on it. Don't load your card with more money than you would be comfortable losing.
Don't be afraid to use a prepaid card, if that's your choice. Just be careful out there.
Kelley Holland is a reporter for CNBC.