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They can really cost you. But you can outsmart them – and even profit from them.

4 minute read

If you’ve heard of prepaid cards at all, you’ve probably heard some bad things. Some have crazy hidden fees. Others are just celebrity-endorsed rip-offs, like the short lived Kardashian Kard. Often, prepaid cards target “the underbanked,” which is the polite industry term for desperate people who can’t get a checking account or credit card.

For others, a prepaid card can be an alternative to a checking account. In fact, the Consumer Financial Protection Bureau once proposed regulating them the same way. The CFPB wanted force prepaid card companies to offer everything from standardized fee information to fraud protection. looked into the terms and fees of more than two dozen cards, and we found specific and narrow circumstances where these cards can work for you. Here are the best prepaid cards for…

People who use PayPal for small business

PayPal Prepaid MasterCard 

There are a handful of cards that can link with a PayPal account, but most don’t make it easy. PayPal offers its own card that allows real-time transfers of up to $300 a day from a PayPal account. You can still load money through direct deposit or at “more than 130,000 NetSpend Reload Network locations” (at pharmacies, gas stations, convenience and grocery stores) nationwide.

Although this card has an unavoidable $4.94 monthly fee, it also has an unusual refer-a-friend program that can get you a $5 credit each time, and an optional savings account that earns 5 percent interest on up to $5,000 — better than most banks.

(You earn no interest on the card’s funds, but you can transfer them to or from the savings account.)

If you sell on eBay, Etsy, or anything else that uses PayPal as a payment method, this card could be great.

People who can’t use direct deposit

Kaiku Visa Prepaid

Several cards waive or reduce monthly fees if you direct deposit a certain amount each month. (Direct deposit is almost universally a free feature.) That can make those cards virtually free if they don’t charge per transaction.

Kaiku doesn’t waive its $3 monthly fee. But it’s probably the next best place to go if you can’t meet the direct-deposit requirements of other cards because your employer doesn’t offer it, you’re self-employed, or you don’t have enough income.

Fee waivers aside, Kaiku is the cheapest Visa you’re likely to find. There’s no penalty for not using the card — many charge a recurring “inactivity fee” after a few months — no fee for transactions, and no fee for using 55,000 in-network ATMs. The fee for out of network ATM transactions is $3.

People who use cash or any other cards

American Express Bluebird or Serve

These two cards are almost identical, and you can’t have both. Also, there’s an important catch with both.

The biggest difference between the two is that Serve has a $1 monthly fee, waived when you load $500 a month. Bluebird has no monthly fee, which makes it a slightly better option for most people. (Credit card geeks regularly debate the nuances of both.)

Why would they do that? What’s the catch? Well, in a word, it’s the network. Most prepaid cards use the Visa or MasterCard networks. Those are so widespread you don’t have to think about whether a retailer will take your card.

Not so with American Express. Just do a search for “accept Amex.” Some retailers and restaurants think American Express’ rules and fees are too much to bother with. While millions do take their cards, enough don’t that it could be a hassle if you go through life without other options.

One way to get more retailers accepting American Express is to get more people using it. So that’s why it offers two cards with almost no fees. AmEx doesn’t care if you use them often, it just wants as many people as possible to own one — to pressure merchants to take American Express.

If you’re OK with all that, you get the best terms on the prepaid market. And since prepaid cards don’t affect your credit, you might as well get one alongside a Visa or Mastercard. That, or carry enough cash to cover merchants who don’t take Amex.

General tips to using prepaid cards

Fees vary from card to card, but many things don’t. Here’s some advice to keep costs down…

  • The monthly fees on a card can often be waived by depositing a certain amount monthly, often between $500 and $1,000. Always study how much your monthly fee is — and how to get it waived.
  • Direct deposit, mobile check deposit, and card-to-card transfers are the cheapest ways to load money onto a card. Reloading at stores can cost up to $5.
  • Some cards charge a fee per transaction, and there may be different fees for things you pay for with a PIN and things you pay for with a signature. You definitely don’t want a card that has a “fee per transaction.”
  • Pre-authorizations can tie up your money. When you agree to pay for something whose final price isn’t known up front — like gas — they estimate and put a hold on some funds, then let go of the extra. It can take a few days to clear, but you can avoid this by paying inside instead of at the pump. Other common charges that have re-authorizations include restaurants (that have a hold for tipping), and hotels that hold funds for damage and incidentals.
  • Instead of using ATMs that may have fees, you can get cash back while purchasing something at grocery and drug stores, just like debit cards.

Prepaid debit cards aren’t the ideal way to pay for stuff, but they don’t have to be a terrible way. By understanding the advantages and drawbacks of prepaid cards, you can choose the one the makes the most sense for your needs.

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About the Author

Jason Steele

Jason Steele

I'm one of the country's leading experts on credit cards and have been regularly syndicated by mainstream outlets such as MSN Money and Yahoo! Finance. I live in Denver, Colorado with my wife and two daughters, and we love to travel. We often fly first-class, not because I'm rich, but because I know how to acquire credit card miles in the most efficient way. Keep reading, and I'll teach you, too.

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