Prepaid Cards Replace Paychecks, but Beware the Fees

More and more employers are doing away with paychecks, and even direct deposit in some cases, and replacing them with prepaid cards loaded with your after-tax pay.

According to the New York Times, the cards can be a convenience, especially for the estimated 10 million mostly lower-income households that don’t have bank accounts. They typically must cash their paychecks at check-cashing companies. The typical fee is 3 percent or so.

But now employers from Taco Bell to Walgreen to Wal-Mart are offering prepaid cards.

The trouble is, many cards are loaded not just with your pay but with fees, the Times said.

There are fees for using an out-of-network ATM for a cash withdrawal, inactivity fees, fees for balance inquiries, for a purchase using the card, or for replacing a lost one.

Most of the fees are relatively small—from fifty cents to a couple of bucks. But some, such as for overdraft protection, run $25 or so. In total, they can add up.

Bottom line: If you get paid via a prepaid card, know the rules cold.

-Follow Tyler on Twitter @TylerMathisen

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  1. I think this issue needs more investigation after reading in the news medial concerning the McDonald’s ex-employee. This money belongs to the employee and 100% should be paid directly to the employee.

    This sounds like the “company store” model used by mining companies in the beginning of last century especially if there is some kind of financial relationship between the business that issues the bankcard and the employer.

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