The Rise of the Prepaid Card

Use of prepaid debit cards continues to increase, reaffirming both continued personal finance troubles for many Americans as well as general distaste for banks. New stats reported by Javelin Strategy & Research show that the percentage of consumers who purchased prepaid cards rose from 11% to 13% between 2010 and 2011. The amount of cash put on these cards is expected to soar north of $200 billion next year, up from $28.6 billion in 2009.

Analysts say this is the result of stingier lending habits by banks. The days of credit card giveaways and free-for-alls is over, replaced by hesitant banking executives worried by defaulting trends in the American economy. Banks are also responding to legislation passed during the financial crises of recent years that puts heavy limits on fees that can be charged on credit card holders.

The results have been less standard bank accounts, less conventional cards, and more prepaid cards. Some analysts see nothing less than a financial revolution on the way that will entail non-credit cards, such as the ones you can get with Green Dot Credit Cards – Credit.com.

Consumers have been surprisingly tolerant of the prepaid card fees, willing to trade in a few bucks in order to have control over their finances—or, a better way to say it might be ‘not having the ability to lose control.’ With the prepaid cards, consumers load a certain amount of money onto the card and can then essentially use it like a checking account or credit card, only without the fear of overdraft or piling on exorbitant costs during a spending spree. Reloading more money onto the cards usually entails a fee of $4 or $5 dollars, though in some cases that fee can be bypassed or minimized by rewards programs.

Some of these services also offer budget apps and other tools and savings accounts. Many of the funds on the cards can be managed from grocery store kiosks and online.

Ultimately, what this trend shows is that people are willing to spend a little bit of extra money in order to ensure that they don’t spend too much. Major banks’ overdraft fees in particular have come under scrutiny, with some account holders finding they’ve accumulated multiple $35 overdraft fees in one day without ever receiving an alert. One can easily see why banks—who for so many years have preyed on interest rates, financial irresponsibility and debt—might be a little worried.