Until now, reloadable prepaid cards have been primarily used by
people without bank accounts, and by states to deliver benefits.
But Mercator Advisory Group predicts that $70.7 billion will be
loaded onto these cards in 2011, a 68% increase over 2010.
Banks hope that the fees on prepaid cards will help them recoup
revenue lost as a result of limits on fees charged to credit card
users and, now, cuts in the fees paid every time someone swipes a
debit card (for more on bank fees, see
How to Get a Better Deal at Your Bank
Plus, prepaid cards have started to appeal to more affluent
customers. Issuers have a "great opportunity to go up-market," says
Brent Watters, a Mercator analyst. Higher-income consumers are
using prepaids to avoid going into debt. Or they're giving one to a
child who is traveling abroad or going away to school.
The new American Express Prepaid card eliminates many of the
fees (purchase, activation, maintenance and some reloading fees)
that traditionally characterize these cards. However, you will pay
$2 for ATM withdrawals after the first one each month. Reload at no
charge via checking account transfers or direct deposit.