Prepaid debit cards are all the rage these days as numerous companies are putting them out there, but most people don’t stick with one card too long. According to a recent study by the Philadelphia Federal Reserve, the typical prepaid card lifespan is about six months, before customers move on.
Prepaid debit cards more common
Prepaid debit cards have become increasingly prevalent in recent years for a variety of reasons. Unbanked consumers are able to get the cards and use them as a bank account; others see them as a way to get away from the banking-industrial complex.
Regardless, the use is increasing. According to the Huffington Post, 13 percent of Americans were using prepaid debit cards as of 2011 and 11 percent were using them the prior year. According to CNBC, the Mercator Advisory group estimates $57 billion were loaded onto those prepaid cards in 2011. Mercator expects that to grow to $167 billion by 2014.
However, despite the cards’ popularity, a first-of-its-kind study by the Federal Reserve Bank of Philadelphia indicates, according to the Huffington Post, that most people don’t keep them too terribly long.
Everyone’s heard of a “May-December romance,” where a younger person dates an older person. The relationship many people have with their prepaid debit cards could well be described similarly, as May through December is about as long as most people keep the cards.
The Philadelphia Federal Reserve, or “Phed” if you will, found the average lifespan of a prepaid card was about six months. The study examined the account activity of 3 million cards, looking at more than 280 million transactions.
High fees were thought to be a component of why customers don’t retain cards too long, as monthly fees cost from $3 per month and upward, with some cards coming in at more than $17 per month. However, many of the card companies have to charge high fees, since customers aren’t using the products long enough to be fiscally viable.
Benefits and drawbacks
Prepaid debit cards have some fantastic benefits, but also some serious drawbacks. The fees, which range from fees for getting a cash advance via an ATM withdrawal, monthly maintenance fees and reload fees, where it costs money to put more money on the card. According to Daily Finance, the fees vary from card-to-card, even among different cards offered by the same company, so anyone interested in acquiring one should shop around to find one that fits them best and is lowest-cost.
Some of the advantages are that it opts a person out of the big banks. Granted, this also precludes them from the benefits of Big Banking, but it also decreases the risks. Another advantage is zero overdraft fees, as a transaction will be declined without sufficient funds.