Pre-Paid Debit Cards at Christmas: Ho Ho Hold the Fees!

New York, NYPrepaid debit cards may not be the perfect Christmas gift you thought them to be, given that a host of fees can seriously erode the value of the card.

The product can be preferable to the credit card in an economy where few can afford to run up additional debt. Cash is king this year, as consumers scale back their celebrations and attempt to live within their means. In so doing, it's important to squeeze every last bit of value from the dollar.

However, be wary of the fees that accompany pre-paid debit cards. Deirdre McMurdy, a financial columnist contributing to MSN Money, reminds us that the value of the prepaid debit card can be "seriously eroded by purchasing and processing fees, transaction fees, activation charges and expiry dates. If the card isn't fully used within six months, there's often a maintenance fee incurred by the holder—up to $2.50 a month until the balance hits zero."

While the Finance Department recently announced new rules that prohibit the accrual of fees on inactive cards for up to a year, other fees will remain in place.

Many of these fees are hidden in the fine print that most prepaid debit card users don't bother to read. Vendors often neglect to share any of the associated fees with the purchaser, who remains unaware of the reduced value until he tries to buy $100 worth of merchandise with his $100 prepaid debit card, only to discover that its buying power is less than face value.

Pre-paid debit cards are not the same as store gift cards

Gift cards to particular stores usually do not carry the same kinds of fees as prepaid bank debit cards. The money will be spent in one store and the store benefits from that business. A consumer will often spend a higher amount than the face value of the gift card and make up the difference in cash. However, given that a prepaid debit card can be used like cash anywhere, the only real benefit to the sponsoring company is the basket of fees it charges. The consumer is dinged in the process.

Anyone thinking of giving a pre-paid debit card as a gift this Christmas would be wise to weigh the issues first.