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Prepaid Debit Cards Are Getting Better All The Time

Experts we've talked to say the age of the prepaid debit card has finally arrived.

The new Bluebird card from American Express and Walmart got rave reviews as it cuts fees to $2 for ATM withdrawals and $3 per month for usage. Chase's Liquid card also earned high marks for few fees but a flat monthly fee of $4.95 and a $2 for using out-of-network ATMs.

Contrast that with the fee levers banks have been pulling this year, from cutting free checking with no minimum balance requirement to jacking up average monthly maintenance fees for noninterest-bearing checking accounts by 25%.

"Prepaid cards have been growing in popularity for some time now," said Odysseas Papadimitrious, a credit expert with Card Hub. "They were the fastest-growing form of electronic payment from 2006 to 2009, according to the Federal Reserve, however it wasn't until the Durbin Amendment was passed, costing banks $8.4 billion in revenue annually, that they really took off."

Now that debit cards have been stripped of rewards, he said banks are experimenting with new checking account fees and prepaid card offers, which boosted their popularity even more. He also points to celebrities for helping these products draw a mainstream audience as George Lopez, Magic Johnson, Lil Wayne and Suze Orman have all started advertising their own prepaid products, for better or worse.

"A s more people see their peers using prepaid cards, they will be more inclined to do so," Papdamitrious said.

Bethy Hardeman, an expert with CreditKarma agrees: "These cards are especially attractive to the 'unbanked' population—people who either can't get a traditional bank account or don't want to do business with a bank, so as long as we start seeing more products like Bluebird that don't gouge consumers on fees, I think we'll keep seeing prepaid cards rise in popularity."

But not everyone seems convinced that upper- and middle-class consumers will fully buy in. In an interview with Business Insider, Greg McBride, Bankrate's senior financial analyst, said he thinks consumers will start seeing better pricing on prepaid cards and that underbanked households will continue to use them in lieu of checking accounts. But the majority of consumers won't abandon their checking accounts for prepaid debit cards altogether.

"Look at all the free options available," he said, pointing to credit unions, online banks and small community banks, which all offer reasonable rates (and fewer headaches) than their commercialized counterparts.

"We'll see more competitive offerings," he continued, but there's no way prepaid debit cards would eclipse our everyday checking needs. We simply want more from our accounts, he said, and we like the idea of tying up our funds with a reputable institution. Our nest egg feels safer, and we feel more secure.

Additionally, it's key to remember that prepaid debit cards aren't useful for all that much besides managing money and giving people quick access to cash. As we've pointed out before, they won't help you build credit the way a secured credit card will, and they certainly can't be refunded if they're stolen in an emergency.

John Ulzheimer, president of SmartCredit.com, says that, " In the grand scheme of things, credit cards are a better option than prepaid for responsible consumers. You have credit building benefits, significant protection under the Fair Credit Billing Act, and best of all, it's not your money. You can't say any of those things about prepaid debit cards."

SEE ALSO: How I got out of debt in five months >

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