Would you characterize yourself as an “average” bank customer? If so, you may be better off with a prepaid debit card than a traditional checking account.
That’s the somewhat surprising finding of a recent Pew Charitable Trust’s recent study that created three different types of customers — savvy, average and hapless — and predicted how many fees they’d rack up over a typical month using each banking method.
Prepaid cards have become more popular in recent years, but the majority of people still use checking accounts. Deciding which is best for you is, in some ways, an exercise in risk tolerance.
Checking accounts can slam incautious users with fees, and some can place consumers in debt through allowing overdrafting. But since any checking account provider is subject to federal regulations, your money is largely safe, and that’s a security many are willing to pay for.
A prepaid account, conversely, can be characterized as a high risk-high reward solution. Average consumers have a good shot at seeing lower fees, but the industry is not subject to regulatory oversight. And while many prepaid programs don’t allow consumers to overdraw, they also do not need to disclose all their fees, which means you could be in just as much danger of racking up penalties as with a checking account.
So exactly how much money — if any — would you save with a prepaid card? PYMTNS.com breaks down the study’s findings.
Study Parameters
Pew studied 52 prepaid debit cards that make up 65% of the market, and 237 conventional checking accounts offered by the 12 largest U.S. banks. The study used a $1,500 direct deposit and 17 point-of-sale purchases per month for each type of customer.
“Savvy” Customer
If you’re familiar with your checking account’s fees and pay attention during the month, you’re better off using this traditional method. Savvy consumers averaged $3.99 a month in fees for a checking account, compared to $4.50 a month for a prepaid card. It’s essentially a wash, but given the added security that comes with a checking account, it looks like the decision should be an easy one for this subset of the population.
“Average” Customer
Average consumers see a huge hike in fees for both banking methods, but a prepaid card becomes cheaper. Those with a checking account saw $28 in fees a month, while prepaid rang in at just $22.15. That’d make it a tougher call for many.
“Hapless” Customer
If you have a poor grasp of how your checking account works and you throw caution to the wind in your transactions, you’re going to be much lighter in the wallet. This group paid an astounding $94 a month in checking fees, compared to just $28.70 in prepaid. We’d urge you to pay more attention, but if banking really isn’t your forte, perhaps a switch to prepaid is in order.
To read more interesting stats form the Pew report, click here.
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