Consumers who have poor credit, no credit or don’t have access to traditional bank accounts often find prepaid debit cards helpful, because they offer features like direct deposit and make it possible to shop online or using smartphone apps. Still, they don’t have a lot of the benefits associated with credit cards, like the strong consumer protections and the ability to build credit. A lot of credit cards offer rewards, too, which aren’t things you generally get from prepaid debit cards.
That’s started to change, most recently with a new product from American Express. On Wednesday, AmEx announced Serve Cash Back, which offers cardholders a 1% cash back reward on every purchase. For someone who uses prepaid debit cards as a regular form of payment, that 1% cash back could be a nice way to save a little money.
Serve Cash Back has a $5.95 monthly fee (there’s no fee in New York, Texas or Vermont), so cardholders would have to spend roughly $600 a month to break even. There’s no minimum balance requirement, and as with most prepaid debit cards, there’s no credit check required to get it (that’s a huge part of these products’ appeal).
The often-cited drawback of prepaid debit cards in general is the fee structure. You could end up paying a lot just to load cash onto the card or use an ATM to get cash out, but as long as you’re familiar with your card’s fees and use the card in a way that avoids incurring them, prepaid cards can be affordable, convenient financial tools.
Remember that using a prepaid debit card will not help (or hurt) your credit, because banks do not report debit card activity to the three major credit reporting agencies — Equifax, Experian and TransUnion. If you want to build credit, you may want to consider using a secured credit card — they’re typically about as easy to get as prepaid debit cards, making them useful for people with no credit or a history of credit problems who want to rebuild. Here’s an expert guide to the best secured credit cards available and how they can help you improve your credit score. If you’re working on building your credit, but not sure where you stand, there are many ways you can get your credit scores for free — including through Credit.com — to track your progress.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
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This article originally appeared on Credit.com.
This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.
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