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Will the Occupy Movement Embrace Prepaid Cards?

This week the Occupy movement has zeroed in on Bank of America. The big bank has been a frequent target of Occupy's wrath. Recall that BofA's failed attempt to charge a $5 monthly debit card fee helped give birth to Occupy Wall Street.

As consumers continue to rage over the high cost of banking, an unlikely ally is on the rise: the prepaid card.

Not long ago, the prepaid debit card catered to those more likely to get a payday loan than a checking account. Most cards came with excessive fees that were difficult to understand. And there were few benefits with prepaid cards.

Over the past year, however, the prepaid card industry has moved into the mainstream. Big brands have entered the market, like the Walmart MoneyCard. And more recently, big banks and credit card issuers have launched prepaid cards.

American Express has launched several low cost prepaid debit cards. PASS from American Express is a prepaid card designed for teens, and the American Express Prepaid Card is designed for those looking for a checking account alternative.

And just this week Chase Bank announced that it too was launching a prepaid card. Called the Chase Liquid, it will cost less than $5 a month and card holders will be able to load cash onto the card for free at any Chase branch or ATM (most prepaid cards charge customers when they load cash onto the card).

As the competition in the prepaid market has risen, costs have started to come down. There are many cards available for a monthly maintenance fee of $5 or less. And there are even a number of prepaid debit cards with no maintenance fees. Depending on how a prepaid card is used, it's possible to pay nothing for the card.

As costs have come down, features have improved. Most every prepaid card offers direct deposit of paychecks and government benefits checks. Several prepaid cards now offer high interest savings accounts. And some prepaid cards are now offering features such as roadside assistance and purchase protection.

Notwithstanding these improvements, however, there are some pitfalls to avoid. As a starting point, it's important to understand how you will use the card before deciding which card is best for you. For example, if you plan to withdraw cash from an ATM frequently, you'll want a prepaid card that offers free ATM service.

Likewise, many cards offer reduced fees if you use the direct deposit feature. Some cards go even further by offering a $10 to $25 bonus for those that use direct deposit to have their paychecks loaded onto the card. In contrast, if you plan to load the card with cash, you may want to consider a card like the Chase Liquid that doesn't charge for cash loads.

Don't be fooled by features you'll rarely use or that offer little value. For example, some cards offer prescription drug cards that purport to lower the cost of medication but that many believe have little value. And if you want to improve your credit, recognize that prepaid cards cannot help you. Some cards offer features aimed at helping you understand your credit better, but prepaid cards will not improve your FICO credit score.

Finally, be proactive in managing a prepaid card. Make sure you understand the terms and conditions of the card so that you are not hit with unexpected fees. If your card charges for ATM withdrawals, consider getting cash back at a retailer instead. And if a better prepaid card comes along, don't hesitate to switch if it's in your best interest.

DR is the founder of the popular personal finance blog The Dough Roller, and the credit card review site Credit Card Offers IQ.

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