Is Suze Orman’s New Prepaid Card a Good Choice?

Suze Orman's new prepaid card
Suze Orman's new prepaid card

I heard Suze Orman talking about her new prepaid card the other day, in an interview with Audie Cornish on National Public Radio. It’s called The Approved Card from Suze Orman.

Orman criticized prepaid cards that charge excessive monthly fees. She said that her card would sell for $3, and would have a monthly fee of $3, which would be waived for the first month. And she vowed that the fee would never go up.

So how does this card really stack up against other prepaid cards? Is Orman doing the public a service, or is she just out to make money?

Answer: It’s a good card. Consumer Reports had its financial services experts review the terms and conditions of the card and found that the fees are consistent with the better prepaid cards in the marketplace. For example, the $3 per month fee will get you up to four cards and there are no activation, cancellation, or inactivity fees. That’s pretty good.

Building Credit With a Prepaid Card? – Not Yet

In the interview, Suze made much of the fact that her card would report consumers’ buying data to a credit bureau, TransUnion. The implication is that using this card responsibly can improve your credit score, However, that’s a misconception. The credit bureau has agreed only to collect the data and study whether such data could be used in the future to build credit.

Odysseas Papadimitriou, CEO and founder of Evolutionfinance.com, was skeptical toward the feature which gathers cardholder’s spending data—”What would appear? That you shopped at Walmart and saved?”—and he doesn’t see how consumers would use that information either, aside from learning how to set a budget.

“It’s a marketing gimmick, plain and simple,” he said.

If you really want to repair your credit or to establish a credit history, you should go with a secured credit card. But if you’re looking for a prepaid card to avoid having to carry cash, or to pay bills online, or shop online, then Suze’s card is not bad.

Prepaid Cards – an Appealing Alternative to Credit Cards

Neighborhood bodega, corner store, local market
Many neighborhood markets sell a variety of prepaid cards

The Sun Sentinel of South Florida reports that the prepaid card business is booming throughout the USA, because the credit crunch, and rising fees on checking accounts, are spurring consumers to find alternatives.

In 2008 American consumers loaded $12 billion on their prepaid cards. In 2010 that jumped to $42 billion, and this year – 2011 – will probably top $70 billion, according to the Mercator Advisory Group of Boston.

The major concern for consumers is keeping the fees low, as companies typically charge an activation fee, and charge another fee to reload the cards. The activation fee is generally about five bucks, the reloading fee is about $3, and ATM withdrawal fees are about $2. These fees can be reduced if you use direct deposit (of your paycheck).

Azfar Ali, 28, who co-owns a grocery store in Hollywood, Florida, has a credit card and a bank account, but he prefers prepaid cards for internet purchases so that information from his credit card or bank account can’t be stolen.

He loads his prepaid cards with small amounts for specific purchases. He transfers the money to the cards from his bank account, which carries no fee. If someone steals his card data, there’s little money to access, and he loses only the money loaded on the card.

“It’s a lot safer,” said Ali, who has been using the prepaid cards for a decade.

Sounds like a smart guy to me. I might start doing the same.