01/31/2013 12:37 pm ET Updated Apr 02, 2013

Beiber (Card) Fever: The Pros and Cons of Prepaid Cards

Would you get a prepaid card endorsed by Suze Orman? How about Justin Beiber?

The prepaid card market shows no signs of slowing down. Banks are looking for new ways to make revenue and, according to DailyFinance, prepaid debit cards are the new goose that laid the golden egg. A faster way to get that goose in the hands of American consumers is to slap on a celebrity endorsement.

Sure, there have been some flubs (remember the Kardashian Kard?), but that could be chalked up to growing pains of this still-new financial product. Some prepaid cards are actually taking a more educational approach too, like the Beiber card, which helps kids learn how to budget and control their spending, with parental supervision, of course.

Even so, is a prepaid card right for everyone? Probably not. But if you're thinking about getting one, make sure you know the ins and outs first.

The Good

Prepaid cards can be great for consumers who have a hard time getting a traditional checking account -- or for those who just don't want one. There generally aren't any qualification restrictions for prepaid cards. They work like reloadable debit cards, and you make purchases like you would with a credit card. As long as your balance is enough to cover the purchase, you're good to go.

Prepaid cards can also be good budgeting tools, since you figure out how much you'd like to load on the card. Plus, you don't have to worry about racking up debt like on a credit card.

The Bad

There's one really important missing factor: prepaid cards do not build credit history. For some people, that's of no consequence -- they either don't need or want to build credit -- but for financial newbies hoping to start off on the right foot, a prepaid card won't get them there. Even Suze Orman's Approved Card, which emphasized the fact that it sends data to TransUnion, doesn't report to the credit bureaus.

The Ugly

While prepaid cards are getting better about this across the board, overall they come with hefty and tricky-to-avoid fees. The Kardashian Kard was probably the worst offender -- it cost $99.95 to own. While the Approved Card is better with a $3-a-month fee, it still comes with a list of other potential fees. Even as these fees lessen with each new card, it's still important for consumers to figure out the potential cost (instead of just the up-front cost).

It's not all bad. There are two new, innovative prepaid cards on the market that have fewer fees and unique benefits: Bluebird and Serve from American Express. They're paving the way for prepaid products that help under-banked consumers, instead of taking advantage of them.

What's Next?

The Consumer Financial Protection Bureau is keeping its eye on the prepaid card industry. Last year, the Bureau took comments and complaints from the public, though it hasn't released a report yet about those comments. The good news is that, the more this market grows, the more scrutiny it will receive.

So keep your eyes on prepaid debit cards. Just like celebrity endorsements, they're here to stay.

Bethy Hardeman writes on credit, personal finance and the economy for, a free credit management website that helps more than 10 million people access their credit score for free. Find her on and Twitter.