Federal Benefits Prepaid Card Evaluation

The federal government’s program to eliminate the use of checks for the disbursement of social security benefits took effect March 1.  Consumers now have the option of receiving funds via direct deposit to an existing bank account or through a Direct Express Debit MasterCard Prepaid Card account.  (Interestingly, people who don’t actively opt-in for either plan will continue to receive paper checks, but that’s not a well-publicized or highly encouraged choice).

Since you may have been considering opening a prepaid card anyway in order to escape rising bank account fees or to take advantage of the versatile utility that many of the newest prepaid cards offer, it’s fair to wonder how the so-called Federal Benefits Prepaid Card stacks up against the competition.  In order to help you make that determination, we’ll evaluate its fees and functionality in the same manner as we’ve done with the Justin Bieber Prepaid Card, the Bluebird Card from Walmart and American Express, and every other major prepaid card launched in the past couple of years.

To start, we’ll examine whether or not the Direct Express Debit MasterCard Prepaid Card offers the requisite features to fulfill any of the three most common applications that consumers have for prepaid cards:  alternative checking account, financial literacy teaching tool, and alternative check cashing tool.  In other words, while you sign up for the card to receive federal benefits, does it offer broader banking value as well?  If so, how much will using it run you each month?

Cost

 

• Checking Account Alternative:  N/A, given the inability to pay monthly bills via check
• Financial Literacy Teaching Tool:   N/A, given that this card is used for the disbursement of federal benefits, for which children are not eligible.
• Check Cashing Alternative:  N/A given that you cannot deposit a check directly into your account.

Unfortunately, the Direct Express Debit MasterCard Prepaid Card is ill-suited for use beyond the scope of federal benefits primarily due to its lack of online bill pay and check loading capabilities.  With that said, the card can be free to use as a means of access to federal benefits payments given its lack of fixed costs and the fact that it does not charge for making purchases at the point of sale or making a single monthly withdraw at in-network ATMs.  But, if you don’t want to take all your benefits money out at one time and/or you aren’t careful about which ATMs you use, the withdrawal fees could certainly add up in a hurry.  That’s especially true considering many ATMs have daily withdrawal limits, which typically range from $200 - $1,000.

Pros

• Limited number of fees:  It’s somewhat easy to avoid paying fees when using the Direct Express Debit MasterCard Prepaid Card, as the majority of transactions and features are free.  There aren’t any fees for activation or monthly maintenance, for example, and limited access to your funds is free as well.  The only things for which you stand to incur a cost are purely optional, such as paper statements ($0.75 each month), transferring funds to a bank account ($1.50 per transaction), making more than one ATM withdrawal per month ($0.90 per transaction), and using your card abroad (3% foreign transaction fee).
• Extensive ATM network:  While most prepaid cards have an affiliated ATM network at which cardholders can make withdrawals without incurring ATM owner fees, the Direct Express Debit MasterCard Prepaid Card’s network is larger than most.  It boasts the 50,000 ATM locations that comprise the networks of Comerica Bank, Charter One, Privileged Status, Alliance One, PNC Bank, MasterCard ATM Alliance, and MoneyPass.  It’s therefore easier for cardholders to avoid a surcharge of around $2.33 each time they withdraw cash.
• FDIC Insurance:  The funds in a prepaid card account aren’t always covered in the event that the issuing institution goes out of business.  It typically depends on if the institution is classified as the “custodian” rather than the “owner” of the funds.  You don’t have to worry about this confusing distinction with the Direct Express Debit MasterCard Prepaid Card because the government explicitly states that deposited benefits funds are FDIC insured.

Marketing Fluff

This section is typically used to highlight purported card features that sound more useful than they are in practice.  There isn’t too much outright fluff in the Direct Express Debit MasterCard Prepaid Card’s marketing copy, but it is important to note that some of its espoused benefits aren’t exactly unique.

For example, the following is the listed answer to the Frequently Asked Question, “What are the benefits of the Direct Express card?”, on the Direct Express website:

“The Direct Express card gives you the advantages of direct deposit even if you don't have a bank account, including:

• It's Safe: No need to carry large amounts of cash and no risk of lost or stolen checks.
• It's Easy: Your money is automatically deposited to your card account on your payment day each month. You won't have to wait for the mail to arrive.
• It's Convenient: You can make purchases anywhere Debit MasterCard® is accepted and get cash at retail locations, banks and credit unions, and ATMs throughout the world.”

There’s nothing technically wrong with that information, but any form of plastic payment will preclude the need to carry around large sums of cash.  In addition, direct deposit inherently offers convenience while eliminating the threat of lost or stolen checks.  Finally, the Direct Express Debit MasterCard Prepaid Card does offer convenient access to your money relative to traditional benefits checks, but not necessarily compared to other prepaid cards – some of which allow you to make unlimited free ATM withdrawals.

Cons

• Only one free ATM withdrawal per month:  If you’re a high-volume ATM user or you aren’t able to access your full benefits payment with a single withdrawal, you should avoid using the Direct Express Debit MasterCard Prepaid Card.  Instead, you’d probably be better off using direct deposit into a traditional bank account.
• Lack of online bill pay:  Some prepaid cards – most notably the GreenDot Gold Prepaid Visa and the Bluebird Card – enable you to pay monthly billers even if they don’t accept card payments.  That’s not the case with the Direct Express Debit MasterCard Prepaid Card, which means it cannot play a very broad role in your money management.
• Inability to load checks directly:  The Direct Express Card won’t help people who receive more than one check each month reduce cashing costs or easily consolidate funds.
• No affiliated mobile banking application:  Recently, we’ve seen new entrants to the prepaid card market offer more and more utility to consumers at a lower and lower cost.  A primary example of this has been the integration of new prepaid card offerings into existing mobile baking applications, which brings account management, check cashing, and more to your fingertips.  The Direct Express Card does not offer such a perk.  It is therefore at a disadvantage compared to market leaders in an increasingly mobile society.

Overall

When you judge the Direct Express Debit MasterCard Prepaid Card solely based on its stated purpose – to disburse federal benefits – it’s a decent product.  Consumers can easily sign up for it and access their funds for free (if careful and organized).  However, it’s applicability to other common consumer banking needs leaves much to be desired.  Until it offers additional money loading methods, online bill pay, and mobile account management tools, the Direct Express MasterCard will adequately serve a particular niche yet prove redundant for users interested in operating within the traditional banking system.  All things considered, federal benefits recipients would probably be better off using a traditional bank account or a more advanced prepaid offering for the time being.