In most cases, checking accounts are a better value than are accounts tied to prepaid cards, new research suggest.
Because checking accounts tend to impose less fees than prepaid debit cards and provide more options to avoid charges, they “turn out to be the better deal,” says Suzanne Martindale, associate policy analyst at Consumer Union, which conducted the research.
Consumers Union, publisher of Consumer Reports, is a Yonkers, N.Y.-based independent, nonprofit testing and information organization serving consumers nationwide. It based its research on a hypothetical consumer’s transaction tendencies, which included paying three bills (two online and one via check or money order) and conducting eight point-of-sale transactions and two deposits per month.
Though at least one analyst believes 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 says. “We didn’t want to assume this was a person sitting around with a reserve of cash in the bank.”
Consumers Union examined low-balance, no-interest checking accounts from Bank of America Corp., Citibank NA, JP
Morgan 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 the Wal-Mart Money card, the H&R Block Emerald Card, two types of NetSpend Visa-branded cards and cards offered by 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, which noted that the checking accounts from Wells Fargo and BofA are cheaper than all 12 prepaid card accounts when consumers take the maximum steps to avoid fees.
But Madeline Aufseeser, a senior analyst with Aite Group LLC, contends 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 tells PaymentsSource. “For them to do the comparison that they have, I don’t think it does justice to the prepaid industry.”
Aufseeser contends Consumer 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 says.
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