Battle of the Prepaids

As a recent college grad, I’m not really in the sort of position to be able to spend tens of thousands of dollars on credit cards to help clear signup bonuses. However, prepaid cards have made my life a lot easier. They allow me to push-forward my spending on my card and allow me to unload the cards to cash through several means.

This month, I’ve gotten 3 different prepaid cards: the American Express Prepaid Card, the PayPower Visa Prepaid Card, and the Wells Fargo Prepaid Card. I thought I’d do a post comparing the three of them for clearing spending bonuses, with their pros and cons.

AMEX Prepaid

Honestly, if you don’t read Frequent Miler’s blog, you’re doing yourself a huge disservice. He is the one who broke news of this here.

The basic gist of this is buying Vanilla Reload cards at Office Depot with Chase Ink cards that earn 5x at the ‘pot (and other office supply stores). This will greatly help your Ultimate Rewards earnings. All the math is on FM’s blog.

In each calendar month, you’re allowed one free ATM withdrawal (free on AMEX’s side, not the ATM side) of up to $400. Most people with the card have said that doing two per month should be the maximum, which is what I agree with. Anything more and you might get shut down by abusing the system. You might be able to get away with more, but I’d rather keep it steady and not get shut out. The second ATM withdrawal will be charged $2 by AMEX. Let’s say your ATM charges $3 for a withdrawal. Two $400 ATM withdrawals/month = $8 in fees. For a card that has a 90-day cycle for meeting a spend bonus, you could theoretically spread ATM withdrawals over 5 calendar months without floating too much on your bill, meaning you could do ten withdrawals totaling $4000 for $40 in fees.

That $4000 in ATM withdrawals would take eight $500 reload cards over the course of 2 calendar months (since it’s a $1000/day limit and $2500 per 28 days limit on loading). It’s $3.95/load, so you would pay $31.60 in load fees, for a cumulative total of $71.60 for $4000 in manufactured spend, or 1.8% in fees. This shows that it’s not really worth it for most rewards cards, unless you’re hitting a spend limit where you’re getting a rebate in excess of 20%.

However, this is a theoretical scenario, since you’ll still likely get shut down for only doing ATM withdrawals on this card. You should be putting some legitimate expenditures on the card – we do a lot of shopping at Costco (which only accepts AMEX), so our Prepaids are great for that. In addition, these prepaid cards have no Foreign Exchange fees, so it’s a great card to have for use abroad.

Visa PayPower Debit

The fee structure for this can vary, as you’ll see …

I found this at my local grocery store. Here’s the tricky thing, though … technically, you’re only allowed to buy these with cash – it says “Cash Only” in very small print in the top corner of the card. But if a grocery clerk were to overlook that because you have 8 other grocery items in the express lane and she’s trying to get everyone through as quickly as possible … ;).

When you first buy the card, there’s a $3.95 fee for loading, and the max primary load is $500. Upon taking the card home, you’ll have to register it online.  I then noticed the first drawback of this card: it’s issued by MetaBank, the same bank behind NetSpend. This is the same bank that has given lots of people problems by shutting them down.

There are two ways to go from here — you can load up $2500 (the maximum daily load limit) and start cashing out. This will likely get you shut down, and you’ll receive your money back in a few weeks (minus a processing fee). This might keep you from taking advantage of other cards from this bank down the road. If you do this, you’ll get about $2500 of spend for about $25 in fees, for the ReloadIt cards ($3.95 each, also “cash only”) + the processing fee for eventually getting your money back.

The second option is to limit the amount of “suspicious” activity, and to use it like a normal user would. What’s a normal user like? I’m not sure, and I don’t want to stereotype, but to me it’s someone who probably doesn’t have a bank account (otherwise they’d have a bank debit card) and so will use the card for small-ticket items (think an average of under $20 spent/day). That means that over the course of 30 days, $500 seems like a legitimate amount.

I then saw the second drawback of this card: it has a $5.95 monthly maintenance fee, charged every 30 days after you first purchase the card. What this means is that for $500/month, you’ll pay close to $10 in fees/month for only $500 of spending if you don’t want to likely get shut down.  This is before you’ve even begun to unload the cash on this card!

I have yet to see if I can get around this by getting another PayPower card. I bought a $500 card at the beginning of this month, and am going to unload it to $0 before the end. They can’t charge me a fee if there isn’t any money on the card! Next month, I’ll see if I can get another PayPower card and avoid the monthly fee.

But what to do about the $500 on this card? Well, I’m using it for small-ticket items, especially at places that allow cash-back. I recently had to stop by the grocery store to pick up milk, and when I used the PP card, the machine asked if I wanted cash-back, since I was doing a PIN-based debit transaction. I asked the clerk what the maximum cash-back I could do — $200! This is basically a free ATM withdrawal, and the card thinks I spent $203 at my local grocery store. That’s a lot of milk! Unfortunately, this seems like the kind of activity that would get me shut down. However, my local CVS will let me do $35 cash-back, and I don’t think it’s farfetched to spend ~$40 each time you go to a pharmacy.

If it weren’t for the fact that the PayPower Visa is provided by the same bank that has shut down a bunch of Netspend users, and the fact that it charges $5.95/month to keep (thus making it expensive to cash out slowly), this would be a powerful tool.

Wells Fargo Prepaid Debit

This is a unique one, since you can load via a credit card directly on the Wells Fargo website once you’ve received the card. They don’t accept AMEX, and Citi tends to make all transactions with financial institutions into non-miles earning cash advances, so that’s a no-go there. Otherwise, this card is great. It costs $5 to use a credit card load up to $2500 when you get it, and between 15-30 days after doing that first load, you can load another $2000 for another $5 in fees. That’s $4500 for only $10 in fees. There’s a monthly maintenance fee of $3, so we’re looking at $13 to put on $4500 of spend per month. Not bad.

I’m lucky to live near a ton of Wells Fargo ATMs, since ATM withdrawals of up to $500 are free for the first 2 withdrawals. After that, it’s only $1/withdrawals at WF-branded ATMs. The maximum transaction is $600, so that fits in well for cashback transactions, since it’s a debit card that you can put a PIN on. Even if you were to simply just load up $4500 and withdraw it from Wells Fargo ATMs over the course of a month, it would only cost you $20 in fees for $4500 in spend. That’s less than 0.5%! I’m mixing it up with some actual non-ATM transactions (since those are free), so my cost will be a bit lower.

Scoreboard

All these cards have their purposes – AMEX Prepaid is still the reason why everyone should have some form of an Ink card that earns 5x at Office Supply stores. PayPower can be good if you have a card that can earn grocery store bonuses, but otherwise, the fee structure and likelihood that I’ll get shutdown just don’t do it for me. The WF card is great, especially if you live in an area with Wells Fargo ATMs (if you live in a former Wachovia area, that became Wells Fargo in 2008).

It’s important to note that these prepaid cards don’t have the same regulations that credit cards have. I’ve decided to keep my Prepaid cards at home and to only carry them when I’m going to actually use them on that trip out of the house.

The fees associated with these don’t make them useful for everyday spending, but can be useful if you’re trying to meet spending requirements for bonuses or promotions. It’s come to the point where I’m paying a lot more attention to category bonuses because I’m clearing primary spending goals a lot earlier.