There’s a lot to love about prepaid debit and credit cards. If you have trouble managing your money (or have a spouse or child who does) prepaid cards take all the guesswork out of spending. Similarly, if you have credit problems and are striving to repair your credit, use of a prepaid card can help you re-establish a positive credit history. Prepaid cards are also great budgeting tools, as well as providing a safer alternative to the cash-in-an-envelope method many budgeting strategists recommend. Finally, prepaid cards can circumvent the need for traditional banking accounts and make it easier to avoid e-commerce related credit card fraud when making purchases online. But in all this, the one thing standing in the way of prepaid card nirvana is this—the fees. Just like with any service, there can be a host of fees attached for the privilege of using prepaid debit or credit cards. This helpful post will guide you through the most common fees and offer tips for reducing (or, best of all, avoiding) those fees.

1. Activation fee

The activation fee is as it sounds—it’s an initial charge to activate and set up your card. Typically this is a flat fee somewhere in the neighborhood of $10 to $30 per card.

Tips to avoid paying: Check to see whether the activation fee is assessed if you purchase the prepaid card online instead of in the store. Also, carefully price compare activation fees—if you do have to pay a fee, the lower the fee, the better!

2. Customer-service fee

A customer-service fee may cover anything from providing you with a transaction history or a monthly statement, to taking your call over the phone or answering your email.

Tips to avoid paying: Not all prepaid cards charge for customer service, so research carefully. Also, some merchants charge only for customer service needs that can’t be fulfilled online using the merchant's website.

3. Minimum-balance fee

This fee will be charged if your balance falls below the agreed-upon card minimum.

Tips to avoid paying: Here, fee avoidance is simple—never let your card balance drop below the required minimum.

4. Overdraft fee

Typically, the prepaid-card merchant is only allowed to hit you with an overdraft fee if you have previously provided authorization that allows you to charge over your prepaid-card limit.

Tips to avoid paying: Don’t authorize the merchant to permit you to overcharge your card.

5. Statement fee

This fee is levied for providing you with a copy of your monthly statement.

Tips to avoid paying: Find out if you can use the bank’s website to get your paperless statement and avoid paying this fee.

6. Monthly fee

This fee is assessed on a monthly basis whether you elect to use the card or not.

Tips to avoid paying: Some merchants are now waiving monthly fees if the cardholder uses direct deposit or keeps a minimum balance. Read the fine print before activating your new prepaid card.

7. Per-use fee

A per-use fee is a fee charged every time you use your card. Essentially, you’ll be paying for the privilege of using your prepaid card. This isn’t an industry standard fee (as of yet), but some merchants are getting away with it.

Tips to avoid paying: Be sure to just say no to any card that charges a per-use fee (also called a point-of-sale fee). Some merchants charge a per-use fee for debit card transactions only—the reason being, it costs the card merchant more in fees to process your transaction as a debit rather than a credit transaction. So if your card is both a debit and credit card, wherever possible, use the credit option for transactions.

8. Inactivity fee

Also often called a dormancy fee, this fee relates to permitting your card to go unused for a period of time (typically between 90 and 180 days). This fee will be assessed monthly until you use your card again, so if you don't catch it early, you could end up paying for months.

Tips to avoid paying: Be sure you know the merchant's policy regarding inactivity. Also, dormancy fees can vary from $1 to $6 or more, so be sure that if you have to pay, you pick the lowest possible fee.

9. Reloading fee

Because the nature of a prepaid card is that you’ll eventually run the balance down, you’ll eventually also need to reload your card or add more money to it. When this occurs, you can assume—unless otherwise informed—that the merchant will charge a reloading fee.

Tips to avoid paying: Check and find out what the policy says about reloading your card. This is a common fee, but with some hunting around you may be able to find a merchant who a) doesn't charge to reload, or b) has a special offer for other services (such as setting up direct deposit or a checking account) that can waive the reloading fee.


For similar articles, check out:

Use Prepaid Visa Cards to Stick to Your Budget

When to Use Credit Cards vs. Debit Cards

Prepaid Debit Cards: The Pros and Cons

Prepaid Credit and Debit Card Fees You Should Never Pay