Why You Shouldn’t Get Your Tax Return on a Prepaid Card

Written By Jeff Hindenach
Last updated November 11, 2017

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February 26, 2016

Simple. Thrifty. Living.

If you’re among the 80 percent of taxpayers who file their returns electronically, you’ve probably noticed that your tax preparation website now advertises the option of receiving your tax refund on a prepaid card. These prepaid card promotions sound tempting, but they don’t actually turn out to be a very good idea. Here’s why you should stick to a more traditional method of receiving your tax refund:

The government has already been holding onto some of your hard-earned money. Now that you’re finally getting a chunk of it back, don’t let it get eroded by prepaid card fees. There’s a reason these tax sites offer this option, and it’s not just because they’re feeling kindhearted. Prepaid cards usually include a whole litter of extra fees, including charges for enrollment, monthly maintenance or “inactivity” periods, customer service phone calls, ATM withdrawals, balance inquiries and the privilege of converting the funds into a paper check. Those ATM fees are in addition to the ones the bank already charges. Consumer Action, a non-profit consumer advocacy group, advises that “if you have a bank account, there’s no advantage whatsoever to getting your tax refund on a prepaid card.”

If you have a checking or savings account, you can request that your tax refund be deposited directly into that account. You will receive your funds as quickly as you would have received your prepaid card. From the IRS’ viewpoint, direct deposit into a card account is exactly the same as direct deposit into a checking or savings account.

Funds in a bank account remain accessible to you even if you misplace your debit card; you can write checks or walk into a branch and ask for cash. Losing a prepaid card, however, creates the need for an involved card replacement process before you can restore access to your money, and you may not be protected from unauthorized use.

A good way to optimize your tax refund is to put it in a bank account and use it to pay your credit card balance down to zero each month. When you use a standard credit card for your actual purchases, you can take advantage of money back, mileage or whatever rewards your credit card company offers.

You worked hard to earn that income tax refund — be a wise consumer and don’t feed extra chunks of it to unnecessary card fees.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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