Be wary of prepaid cards

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American Express

American Express and Wal-Mart Stores made a splash in fall 2012 when they joined forces on a prepaid card that eschews typical prepaid-card fees. More prepaid cards are on the way in 2013, industry observers predict, but Consumer Financial Protection Bureau is mulling protections for prepaid cards and says those measures likely are at least a year away. 

Money that’s on a prepaid card typically isn’t insured by Federal Deposit Insurance Corp. That means that you lose your money if the card issuer goes under. 

John Ulzheimer, who is the president of consumer education at SmartCredit.com, says the risk overall is small, but he wouldn’t ignore it entirely, particularly when consumers deal with prepaid cards that are issued by lesser known small banks.

You’ll have to check the card agreement’s fine print, because fees for prepaid cards—at least 50 prepaid cards are on the market—are all over the map. Monthly fees can run up to $10 per month, and how your money is loaded onto that card also has an effect. A card that has direct deposit will have one less fee than if you pay to load funds, Ulzheimer says.