The 411 on prepaid cards

According to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, we live in a credit-dominated society. "Without a checking or savings account," she says, "it's difficult to cash payroll, Social Security and unemployment checks; you need a credit or debit card to shop online, book a flight or rent a car; and you may be forced to carry large amounts of cash to pay bills."

One increasingly common money management tool for people in this situation is prepaid cards. These cards look and work much like regular debit cards except that instead of funding them through a checking or savings account, you load money on the card by cash, check, funds transfer or direct deposit by an employer or government entity.

Common prepaid card features include:

• You don't need a bank account or solid credit rating to obtain one.
• They start out with a zero balance until you add money. Purchases or ATM withdrawals will diminish the card's balance until it reaches zero and you discard it (as with gift cards) or you reload the card.
• Spending is limited to the amount loaded on the card, so you can't buy more than you have.
• Cards can offer "Zero Liability" protection if you promptly report loss, theft or fraudulent charges.
• Most allow ATM cash withdrawals and online or phone purchases.
• They're safer to carry than large amounts of cash.

Common types of prepaid cards include:

• Reloadable cards – to which more money can later be added.
• Gift cards – used until their balance is depleted; they're not reloadable.
• Teen cards – where parents can reload the cards and monitor purchases online or by phone (allowing teens a chance to manage spending and budgeting in a controlled environment).
• Travel cards – a safe alternative to cash and travelers checks.
• Payroll cards – wages are loaded into the card's account for immediate access (similar to checking account direct deposit).
• Government agency-provided cards – benefits such as Social Security and unemployment are loaded into your card account.
• Healthcare cards – allow point-of-service access to funds in your Flexible Spending Account or Health Savings Account to pay for qualified medical expenses.

Prepaid cards may come with fees and restrictions, so it's important to read the card's terms and conditions carefully and to shop around for the best deals. Good comparison sites include www.bankrate.com and www.creditcards.com.

Here are a few questions to ask when comparing cards:

• What identification do I need to buy this card?
• Where can I use it? (Certain retailers only? Online? Phone?)
• Can I later add funds to it? For example, will it accept direct deposit of payroll or Social Security checks?
• Is there an expiration date?
• Will I receive monthly statements?
• Can I check balances by phone or online?
• What fees apply? Common fees include those for card activation, reloading funds, balance inquiries, ATM or bank withdrawals and declined transactions.
• What happens if it's lost or stolen?

To learn more about how prepaid cards work, you can order a free "Prepaid Card Basics" brochure at Practical Money Skills for Life (www.practicalmoneyskills.com), a free personal financial management program run by Visa Inc.

Bottom line: Always make sure you fully understand the terms and conditions of any financial product or account before signing up.