American Express has announced it's joining the fast-growing $65 billion prepaid card business. Aware that the industry is laden with fees and has its fair share of critics (including me), the company's marketing campaign is stressing how consumers will pay fewer fees with the AmEx prepaid card than other conventional prepaid cards.
The average prepaid card typically carries a $10 activation fee, as well as a $10 monthly maintenance fee. The AmEx prepaid card has neither of those costs, however: Instead, the company charges a $2 fee for each ATM withdrawal, with one free withdrawal each month. The card is also free to buy online - although once it's available in retail stores, it will cost an additional $4.95.
Even I have to admit this is a pretty impressive card, relative to its competitors. For parents sending their kids off to college this fall, this type of low-fee prepaid card may be one way to keep freshman spending on a limited budget. Debit cards can sometimes turn into fee nightmares, especially if you have overdraft protection. With the AmEx card there is no overdraft protection; you can opt to received alerts when the balance falls below $10 and the card will be automatically declined if you try to pay for something that exceeds the card's balance.
Still, if you want to get the most out of this card, remember two quick things:
1. Order the card online. Choose to receive it USPS first class, which is free. Other shipping options, which are faster, cost $12 to $16. You may have to wait a few extra days to receive it, but what's the rush?
2. Go light on ATM withdrawals. You get one free withdrawal a month, but after that AmEx will charge you $2; there could also be another $2 to $3 fee from the institution running the ATM. Instead, use the prepaid card as currency in stores and ask for cash back where allowed. Retailers like Staples, Whole Foods, Best Buy and others offer up to $40 or $60 in cash back at no charge.
Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at www.farnoosh.tv
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