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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Spring 2011 – Special Edition: Shop and Save…at the Bank

Prepaid Cards: No Match for a Well-Managed Checking Account

image of prepaid cards

Prepaid cards are generally reloadable and can be used for purchases at any merchant that accepts credit cards, and often for ATM withdrawals. But while prepaid cards (also known as stored value cards) have potential benefits, they also come with potential costs and concerns.

"Consumers should be cautious before selecting a prepaid card instead of a traditional bank account for their basic banking needs," according to Mark Pearce, Director of the FDIC's Division of Depositor and Consumer Protection. "Many prepaid cards have hidden fees or fewer protections than traditional bank accounts."

For more information on the potential pros and cons of prepaid cards, see Prepaid Cards: Another Way to Pay, But Understand the Downsides.

For consumers who don't plan to write checks but do want to bank electronically, some institutions offer another option: "checkless" transaction accounts that use online banking or a debit card to pay bills and make purchases. Checkless transaction accounts have the same legal benefits as regular checking accounts in areas such as federal consumer protections, which go beyond those for some prepaid cards.

Checkless accounts also may be free or less costly than other checking accounts and prepaid cards. "And, by not agreeing to fee-based overdraft coverage, consumers with checkless accounts can further reduce the risk of paying unexpected charges," said Luke W. Reynolds, Chief of the FDIC's Outreach and Program Development Section. (For more information, see Overdraft Programs: Consider Your Lower-Cost Alternatives.)

In addition, checkless transaction accounts offer consumers an easy way to build savings through regular, automatic transfers to a savings account, something that generally cannot be done with prepaid cards.

The FDIC is exploring how checkless transaction accounts may be helpful for unbanked and underbanked households. In November 2010, the FDIC announced a case study of nine banks offering safe accounts that fit a template designed by the agency. "This study is part of our work to promote safe, affordable transaction accounts that benefit low-income consumers and make sense economically for banks," explained Ellen Lazar, a Senior Advisor to FDIC Chairman Sheila C. Bair.

To learn more about the FDIC study, visit www.fdic.gov/consumers/template.

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Last Updated 5/13/2011