11/15/2013 09:50 pm ET Updated Jan 23, 2014

Prepaid Debit Cards: Are They Right for You?

Just because Russell Simmons, Magic Johnson, Justin Bieber and a host of other celebrities are endorsing prepaid debit cards, it doesn't mean they are right -- or wrong -- for you.

Prepaid debit cards have stirred up controversy in large part because the heavily marketed celebrity cards can be terrible deals. The monthly fees, activation fees, reload fees and random service fees on some of these cards are shocking. The Russell Simmons RushCard, for instance, charges $9.95 for a monthly plan, which is $5 more than the average monthly fee. With Suze Orman's Approved Card, you get one free chat with a customer service agent each month -- then you get charged $2 per call.

Unfortunately, these cards steal the limelight from prepaid cards that actually provide a cheap, safe and accessible alternative to checking accounts and debit cards.

Good and bad eggs aside, the prepaid market has grown rapidly. In 2009, $28.6 billion was loaded onto prepaid reloadable cards. In 2013, Mercator Advisory Group projects that this number will reach $201.9 billion.

Here's why: On July 1, 2010, the Federal Reserve adopted regulation prohibiting banks from automatically adding customers to overdraft protection programs. They also required that banks drop customers from these programs unless they explicitly chose to opt in.

Overdraft protection programs were the way that banks generated $37.1 billion in revenue from "free" checking accounts in 2009. Let's say you had $4 left in your checking account and tried to spend $7 on a sandwich using your debit card. Without overdraft protection, the charge would be denied. With overdraft protection, suddenly you're charged a flat fee for exceeding your balance. The average fee was $34 at the country's 33 largest financial institutions in 2012.

So starting with overdraft legislation, the availability of free checking accounts began to dwindle because they weren't delivering revenue like they used to. Big players like Chase, PNC Bank, Well Fargo, Bank of America and CitiGroup, among others, have all dropped free checking for clients who cannot meet specific balance requirements.

As a result, prepaid debit cards have become an attractive alternative not only for unbanked consumers, but also students and low income families that don't want to pay for a checking account.

Want to know if a prepaid card is right for you? Here's how to work through the decision:

Can I get a checking account?

If you're a U.S. resident, you probably can get a checking account. However, if you had a checking account that was closed for negative balances or dishonest conduct, you may have been reported to ChexSystems, the database banks check when they decide whether to take you on as a customer or not. If this is the case, and you can't successfully dispute the claim, you probably can't get a checking account.

If I can get a checking account, will it be free?

Even if you can get a checking account, can you meet the minimums for a free account? For example, to get free checking from Chase, you need monthly deposits totaling $500 or more, a minimum balance of $1,500 or an average daily balance of $5,000 in linked deposits and investments. Otherwise, you pay $12 per month. Bank of America is nearly the same: $250 monthly or $1,500 minimum, otherwise you pay $12 per month. If you can't meet minimums, look at prepaid options.

What will I get out of a prepaid debit card?

Essentially, you get "light" checking account features. There's no approval process, so you don't need a good credit score and they won't affect your credit score. You can load money, set up direct deposit, transfer funds and sometimes scan checks. You use them to pay bills and buy goods, like a debit or credit card, and some provide an option for writing checks. They're also a great tool for budgeting or learning to budget because you can't overdraft or accrue interest charges. It's a much better choice than stuffing cash under your mattress.

What do I look for?

Above all else, keep an eye out for high or hidden fees.

One of most transparent and cheap cards comes from American Express. The Bluebird (available at Wal-Mart) has no regular fee. You get charged $2 if you use a non-MoneyPass ATM. You can set up direct deposit, reload the card for free at Wal-Mart, scan checks with the Bluebird mobile app and even write Bluebird checks (the first 50 checks are free, the next 50 cost $26).

In July 2013, Consumer Reports ranked 28 prepaid cards, and the Bluebird took first place. Second and third place belonged to the H&R Block Emerald Prepaid MasterCard and the Green Dot Card from Green Dot Bank.

Basically, if free checking isn't an option for you but you want some of the perks of banking and debit cards, look at a prepaid debit card and find the one that has the lowest fees. After all, you don't want to spend a lot of money to be able to spend your hard earned money.

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