Despite banks' recent moves to change the terms of their checking accounts, in most cases checking accounts today are a better value than accounts tied to prepaid cards, a report concluded.
Since checking accounts tend to impose fewer fees than prepaid debit cards and provide more options to avoid charges, they "turn out to be the better deal," said Suzanne Martindale, associate policy analyst at Consumers Union, which issued the report.
Consumers Union, the publisher of Consumer Reports, is an independent nonprofit organization. It based its research on a hypothetical consumer's transaction tendencies, which included paying three bills (two online and one by check or money order) and conducting eight point of sale transactions and two deposits per month.
Though at least one analyst said the testing method was flawed, Martindale contends the study was fair in its evaluation of both checking and prepaid accounts.
"We wanted to assume that a typical consumer might be living paycheck to paycheck," she said. "We didn't want to assume this was a person sitting around with a reserve of cash in the bank."
Consumers Union, of Yonkers, N.Y., examined low-balance, no-interest checking accounts from Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., U.S. Bancorp, Wells Fargo & Co., Golden 1 Credit Union and Alliant Credit Union. It then compared the costs of those with fees applied to 12 different prepaid cards, including those offered by two major prepaid marketers, NetSpend Holdings Inc. and Green Dot Corp.
"Assuming minimum fees for both checking account and prepaid consumers, all the checking accounts offer a cheaper deal than 10 of the 12 prepaid card programs," according to Consumers Union's report.
The report noted that the checking accounts from Wells Fargo and Bank of America are cheaper than all 12 prepaid card accounts when consumers take all necessary steps to avoid fees.
But Madeline Aufseeser, a senior analyst with Aite Group LLC, said the hypothetical consumer transaction tendencies and characteristics on which Consumers Union based its report do not represent the typical prepaid debit card user, who most likely is financially underserved.
"You're comparing two different target audiences and two different demographics" for these products, Aufseeser said. "For them to do the comparison that they have, I don't think it does justice to the prepaid industry."
Aufseeser said Consumers Union is misinterpreting prepaid products designed to serve consumers who cannot have a checking account for various reasons.
"If you don't have money to put in a checking account" to keep a minimum balance and avoid monthly fees, then prepaid "is not more expensive," she said.
