Exploring prepaid cards

In today's credit-driven world, it's difficult to live without a couple of things -- a bank account, and a credit or debit card. In the traditional world of finance, it's hard to cash payroll, unemployment, and Social Security checks.

Online retailers require that you have a credit or debit card to complete transactions.  The same is true is you're trying to book a flight or rent a car.  Consumers have essentially two choices when trying to purchase products and services, or paying bills:  obtain a card or carry large amounts of cash.

Today many of us are trying to stay above water in a sluggish economy. The U.S. Department of Labor reports that 9.1 percent of Americans are unemployed.  It should be no surprise, then, that more and more people are turning to prepaid cards.

In a report examining the prepaid product industry, the Federal Reserve Bank of Philadelphia offered this observation:  "Prepaid cards encompass a tremendous variety of products and applications. With few exceptions, the prepaid market is a market of niches."

According to Federal Reserve figures, 17% of Americans are now using prepaid products, such as the Green Dot Credit Card, as a financial management tool. Many users are hardworking Americans whose credit scores plummeted because of loss of income.  However, not all users are strapped for cash.  Financial institutions now offer prepaid cards for a variety of purposes:

• Reloadable cards - With this product, you can choose how much money to load on it.
• Payroll cards - Many companies that employ workers who don't want direct deposit into a bank account. For these employees, the business will load wages onto a secure card.  Funds are available immediately.
• Government-issued debit cards - These secured cards, issued by government agencies, are used to load cash benefits, such as Social Security, unemployment, and child support.
• Teen cards -  Parents who want to monitor their children's spending often find this reloadable card useful.  The teen card is also a good way to teach teens responsible spending and budgeting habits.
• Travel cards - Using these prepaid cards are safer than carrying cash, and they offer the convenience of travelers checks or debit cards.
• Gift cards - This is one of the most popular cards on the market. You load money onto it once. Gift cards cannot be reloaded.  (For the latest federal rules on gift cards, check out some excellent tips on the Federal Trade Commission's website.)

If you opt for a prepaid card, make sure you understand what features it offers.  Unlike traditional credit cards, prepaid cards don't require that you have a stellar credit score or bank account. Prepaid cards begin with a zero balance until cash is added to them.  You can use these cards for purchases or at ATMs.  With each transaction, your balance will be reduced until it zeroes out.

With all prepaid cards, check to see if the one you're considering offers zero-liability protection in the event that your card is stolen or loss, or if you discover charges that you did not make.   Like traditional credit cards, prepaid cards come with fees and restrictions.  Make sure you understand the terms of agreement as well as your rights as a consumer.