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
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."