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Pros and cons of tax refund loans and debit cards

What's behind lower tax refunds?

Tax refund checks may be smaller so far this year, but millions of Americans still can't wait to get that money in their hands. And the fastest way to do that is to file electronically and elect to have your refund direct deposited into your bank account.

But what happens if you don't have a bank account? You'll have to request your refund by paper check, wait longer to get it -- and then pay check-cashing fees.

Another problem: Lots of people would really benefit by having their taxes prepared by a pro, but they don't have the several hundred dollars to pay for these services up-front.

Tax preparation services firms, such as TurboTax, H&R Block and Jackson Hewitt have come up with solutions to these problems. They sell products and services that allow taxpayers without a bank account to receive fast tax refunds. And they offer the option to have your tax-prep fees debited from your refund.

While these tax refund products do have benefits, they also can entail additional fees, and they don't really result in getting your tax refund sooner. Here's a brief rundown what's available.

TurboTax

TurboTax offers a few products to help get your refund quickly. First, it lets you have any TurboTax fees directly deducted from your federal tax refund. But it'll cost you about $40. You're better off using a credit or debit card, or use cash, to pay the fees.

It also offers a no-fee loan that's paid off when your refund is processed. Loan amounts range from $250 to $1,000, depending on the amount of your anticipated refund and other factors. The loan is directly deposited onto a Turbo Prepaid Visa Card. When your tax refund arrives, it's used to first pay off the loan, and the remaining funds stay on the card.

According to the TurboTax website, you must be 18 or older, expect a tax refund of $1,000 or more, and prepare and electronically file your tax returns with TurboTax. A few other requirements also apply. Those without a bank account can use the card to withdraw the cash on it at thousands of no-fee ATMs in all 50 states.   

But additional fees may apply when using the card for purchases, withdrawals or reloading the card with additional cash or replacing a lost or stolen card. This product is designed for people who don't have a bank account and really need their tax refund immediately. For such people it's a better option than getting a paper check.

H&R Block

H&R Block also offers a similar no-fee loan product called Refund Advance, which deposits your refund onto Block's Emerald Prepaid MasterCard. It's a 0 percent loan with no finance charges or fees. The maximum loan limit is a more generous $3,000.

Also, if you use the H&R Block suite of tax-prep services, you can elect to pay the fees from your refund using what's called Refund Transfer. Block sets up an account to receive your refund and when it's deposited, the company's fees are deducted from the account. Block charges about $40 for this convenience. Again, that's expensive, and the better option is to pay the fees by using your own debit or credit card.

H&R Block also offers to pay your tax refund (collected in the above-mentioned account) to you via a paper check, for an additional $25 fee. Either way, you can expect to receive your refund in about 21 days -- about same amount of time it takes to receive a refund directly deposited from the IRS.  

Jackson Hewitt

Jackson Hewitt also offers a similar no-fee loan that's paid off when your refund arrives. Its maximum loan amount is $3,500, which is more than H&R Block and TurboTax.

The firm also gives clients the option to receive a refund on an American Express Serve Card. This offers similar benefits as the other tax refund cards and comes with no fees and no minimum balance requirements.

Jackson Hewitt claims you could get your refund deposited on the American Express Serve Card up to two days faster than automatic deposit into your bank account. That's because of American Express' practice of adding money to the Serve card when it gets notification of a pending IRS refund deposit. Most banks make your refund money available only after it has been received.

Overall, it's a pretty good deal. Just be mindful that unless you make a larger initial deposit, you may be hit with a fee every month the card is active.

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