USA TODAY - The most dangerous part about handing a teen a prepaid card, say something like the plastic promoted by Justin Bieber, is that the young consumer could unwittingly end up unlocking a slew of hidden fees.
Do you imagine that a teen is going to carefully study a fee list to avoid $15 or $20 in fees in a month? How did it go when you taught a teen to separate whites from colors when doing the laundry? Did you suddenly see pink?
Parents could be seeing red if they think it's safe to just pick up any prepaid card for a student, as a way to avoid the overdraft fees of a regular checking account.
Justin Bieber is giving lessons now on money management and talking about budgeting in a commercial for the SpendSmart Prepaid MasterCard. But never say never when it comes to the risks of going broke on little-discussed fees.
The good news is that the prepaid card field is growing, so there are far more ways to comparison shop if you're willing to read the fine print and fee schedules. Yet, this remains a product that is mostly unregulated at the federal level. The federal Consumer Financial Protection Bureau is reviewing public comments and could issue rules in the future.
"Paying more upfront doesn't guarantee that you're not going to get nickel-and-dimed on other transactions," said Greg McBride, senior financial analyst for Bankrate.com.
Prepaid cards are being marketed to the unbanked, the underbanked and quite simply those who don't like dealing with banks. Walmart, for example, recently advertised its Walmart MoneyCard in circulars as a way to "Save on your overdraft fees." That card has a $3 issuance fee, and other fees apply, too.
Some prepaid cards have upfront fees from $2.99 to $14.95 to activate the card. But many cards won't charge such fees if you get the card online. In some cases, you may have to load a minimum of $20 or so to activate the card.
Fifteen of the 24 most widely issued prepaid cards charge a fee ranging from $3 to $9.95 each month, according to a study released Monday by Bankrate.com. The Bieber-backed SpendSmart card was not part of that survey, but it has a $3.95 monthly fee.
Some cards - including the Bluebird by American Express and Walmart and H&R Block Emerald Prepaid MasterCard - have no monthly fees.
For a younger consumer, the real fees could add up quickly with some services. As a parent, I opened a prepaid card that my son could use only with his e-reader. I found a card without monthly fees, but my teen is not going to be heading to the ATM or using the card in other ways. So far, our experience is limited, and I've only put $20 on the card.
Before selecting any card, though, consider how it would be used. Will the teen want to get cash at an ATM? There could very well be a fee for that. Every prepaid card in the Bankrate.com survey will charge a fee to withdraw money from another institution's ATM; that fee ranges from $1.50 to $2.75 a pop. The Bieber-promoted SpendSmart card charges an ATM withdrawal fee of $1.50 at domestic ATMs; plus other third-party fees could apply from other ATM operators for any type of transaction, including balance inquiry, even if you do not complete a withdrawal.
Several national and regional banks - including Chase, PNC and Comerica Bank - now offer prepaid cards. The banks often charge monthly fees, but many have no fees if you use the issuer's ATM to withdraw money. Depending on how you use the card, the monthly fee could be worthwhile if you avoid other fees, like an ATM fee, McBride said.
Here's a fee that could eat up cash quickly: Will your son or daughter use that card maybe once and then let it sit around unused month after month? Inactivity fees are charged by 29% of the cards surveyed by Bankrate.com. Typically, the monthly fee ranges from $1.95 to $5.95 and may be triggered if at least 90 days have gone by without activity.
Where the SpendSmart fees could add up: There's a $3-a-month fee after 30 days of inactivity. But the inactivity fee is not assessed for the first two months regardless of activity.
And will your teen watch the balance on the card? Or listen when you point out the fees that could be associated with that one?
Many cards will charge a fee if the card is declined for insufficient funds, too.
Five cards in the Bankrate.com survey charge a declined-transaction fee ranging from 25 cents to $1.95 for each declined transaction. Four charged only for transactions that are declined at an ATM; their fees are either $1 or $2.
Sure, sure, fees on prepaid cards are avoidable, if you pay attention to the rules. Remember, though, overdraft fees - and pink socks - can be avoided, too. The question remains: Will your teen handle that prepaid card more carefully than the laundry?
FEES TO WATCH OUT FOR
What fees do you need to consider with prepaid cards?
• Before picking up a prepaid card, read the fine print either online or on the card's packaging. Will there be a fee to load money onto the card?
• The Bankrate.com survey of 24 widely issued prepaid cards indicated that most of those prepaid cards do not charge a fee for PIN-based point-of-sale transactions. But two cards in that survey do not allow for PIN-based point-of-sale transactions. Five cards charge a fee for PIN transactions that can range from 49 cents to $2 a pop.
• If you're considering a prepaid card, pay attention to any fees for calling customer service, paying bills, getting a paper statement, extra fees for ATM balance inquiries or even a fee for not using the card for a month or more.
• If you have direct deposit onto a prepaid card, it may be possible to avoid a monthly fee. But often, there's a minimum required deposit.