March 12, 2009
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Prepaid Cards (101), Pt.4
FDIC protection.In these days when so many titan-businesses are going bust (like Circuit City), you may experience some of the same tribulation that was put on so many holders of gift cards that became worthless over night. Heaven forbid but, not all institutions are covered by FDIC. FDIC is the government entity that was created after the Great Depression when millions of Americans lost all of their life's holdings over night. Banks fell like dominoes with no safety net. This is not a problem with credit cards but it can be an important concern for prepaid card holders. (This is an area where credit cards are safer.)
Today, the FDIC has become quite involved. They currently insure over 8,000 of our nation's banks and other financial institutions. So, if you have your prepaid card fully loaded and your card has the print that says "Member of FDIC", you're in good shape. Should that bank go ‘belly-up' and all the funds disappear (the banks only keep about 10% of the deposits they have. The rest is out in loans), eventually you will get all your money back. If you have $250,000 on the card (I wish I did), then you are entitled to be reimbursed that amount by the Fed. (Side note: that value falls to only $100,000 at year's end.) If, however, you're unlucky, your issuing bank will not be insured by FDIC and you know what that means!!! It's certainly worth finding out from, either your issuing bank or from FDIC's website at: (http://www2.fdic.gov/idasp/disabled.asp). Paste this URL into your browser. (Obviously, credit cards don't need this protection.)
Lastly, it may be worth noting for some that the use of prepaid cards (good or bad) will have no bearing on your credit card score. If you're trying to build a credit card score, you may want to consider ‘secured credit cards'. There are many similarities to each of the types we've been discussing. But, if you like to live on ‘the edge' of responsibility then, prepaid cards may be the way to go.