Is Your Money Safe if Your Prepaid Card Fails?

What happens to your money if your prepaid card issuer goes broke? We’ve surveyed all of the most popular prepaid cards to find out when you’re protected…and when you’re not.

Is Your Money Safe on a Prepaid Card

When was the last time you asked your bank for its balance sheet? Probably never. We take for granted that money in our bank accounts are safe even if the bank goes under.

That’s thanks to FDIC insurance. FDIC insurance is the federal government’s guarantee of bank deposits. It insures each depositor up to $250,000 in the event the bank fails. Federal law requires all banks to have it. Credit Unions have the equivalent with NCUA insurance.

But what about prepaid cards? Is the money loaded on the card safe if the card issuer goes bankrupt?

Probably.

How FDIC Insurance Applies to Prepaid Cards

With a prepaid card, you don’t have an associated bank account. But you can still have the same FDIC protection as checking or savings accounts.

That’s because the funds you deposit on a prepaid card are held in a bank account, just not a separate one. The FDIC calls the account a “pooled account.” Funds on many prepaid cards are “pooled” together in a single bank account.

The FDIC insures pooled accounts if the account is set up as a custodial account for the cardholders.  The account must also identify the individual cardholders and track the funds owned by each. So Netspend, for example, may keep cardholder money in its own named account. But its account lists its cardholders as the owners of the funds.

If the account meets those requirements, the money in the account, and the prepaid cardholders that own it, are covered. It’s what the FDIC refers to as “pass-through” insurance. The protections are passed through to the cardholders. Pass through insurance offers the same FDIC protections as those available to bank accounts.

Although there is no legal rule that prepaid card accounts have FDIC insurance, nearly all do.

Which Cards are Covered?

We reviewed the terms and conditions of 48 prepaid cards. And all but one purport to meet the requirements for FDIC insurance. (see below)

Not surprisingly, all the brick and mortar bank-issued prepaid cards have FDIC insurance. Those include Chase’s Liquid cardFifth Third’s Access 360 card, and Wells Fargo’s EasyPay card.

So do most popular prepaid cards from non-bank distributors. Like NetspendRushCard, and Walmart MoneyCard. Generally, cards distributed by these companies are issued by the bank that holds the funds. MetaBank, for instance, is the issuing bank for Netspend. MetaBank rather than Netspend holds the account containing the cardholders’ deposits.

Only one of the prepaid cards that we reviewed doesn’t meet the requirements for FDIC insurance. That’s the Current card, a prepaid card for teenagers.

The cardholder agreements of three of the cards are silent about FDIC insurance–the MyVanilla card, the H&R Block Emerald card, and the U.S. Money Prepaid Mastercard. Though the MyVanilla and Emerald cards say elsewhere on their websites that their cards are covered.

What Cards (or Funds) Aren’t?

Unregistered reloadable prepaid cards aren’t covered by FDIC insurance. Those are the temporary cards that you buy in retail stores like Walmart or 7-11. That’s because those cards, and the funds that you load on them, aren’t registered in your name. The money becomes insured only after you register the card and get the personalized card in your name.

Non-reloadable prepaid cards aren’t covered either. Those include store-specific gift cards, like a Kohl’s or Best Buy card. They also include non-reloadable, general purpose prepaid cards. Those are the gift cards that carry the Visa or Mastercard logos but aren’t personalized.

For the same reason, cash reload cards, such as Green Dot MoneyPak or the Reloadit pack, aren’t insured. They don’t identify the purchaser.

The Bottom Line

Money on prepaid cards can have FDIC protections, like bank accounts. And in fact, almost all reloadable prepaid cards do.

But they’re not required to. So it’s essential that you verify the card has FDIC insurance by reading the terms and conditions. That way, if the card’s bank goes under, your money doesn’t go with it.

FDIC Insurance for Prepaid Cards
Prepaid CardIssuer/BankFDIC Insured
1-2-3 Rewards® Prepaid CardU.S. BankYes
Access 360° Prepaid CardFifth Third BankYes
AccountNow Gold Visa® Prepaid CardGreen Dot BankYes
ACE EliteTM Visa® Prepaid CardMetaBankYes
AkimboTM Prepaid MastercardThe Bancorp BankYes
American Express Serve®American Express Travel Related ServicesYes
American Express Serve® Cash BackAmerican Express Travel Related ServicesYes
BB&T MoneyAccount®Branch Banking and Trust Company (BB&T)Yes
BBVA Compass ClearSpend Visa®Compass BankYes
Bento for BusinessCommunity Federal Savings BankYes
Bluebird by American ExpressAmerican Express National BankYes
Brink’s Prepaid MasterCard®BofI Federal BankYes
CashPass Visa Prepaid CardMetropolitan Commercial BankYes
Chase LiquidChaseYes
Commerce Bank mySpending CardTMCommerce BankYes
Control Prepaid MasterCard®MetaBankYes
Current Prepaid Visa CardFinco Services, Inc.No
dash™ Prepaid Mastercard®Sunrise BanksYes
Emburse Prepaid Debit CardSunrise BanksYes
FamZoo Prepaid CardFour Corners Community BankYes
Fred Meyer Rewards® CardU.S. BankYes
CARD.com Visa® Account Prepaid CardCentral Bank of Kansas CityYes
Green Dot Cash Back Visa® Debit CardGreen Dot BankYes
Green Dot Prepaid Visa®Green Dot BankYes
H&R Block Emerald Prepaid MasterCard®BofI Federal BankNot in Terms/Conditions
Insight Visa® Prepaid Debit CardRepublic Bank of ChicagoYes
Kmart Halogen Prepaid CardGreen Dot BankYes
Mango Prepaid MastercardMetropolitan Commercial BankYes
MileagePlus® GO Visa® Prepaid CardRepublic Bank & Trust CompanyYes
MyVanilla Prepaid Visa® CardThe Bancorp BankNot in Terms/Conditions
Netspend® Small Business Prepaid Mastercard®MetaBankYes
Netspend® Visa® Prepaid CardMetaBankYes
NexsCard Prepaid VisaMetropolitan Commercial BankYes
OnBudget Prepaid MastercardSunrise BanksYes
PayPal Prepaid MasterCard®The Bancorp BankYes
PEX Visa® Prepaid CardThe Bancorp BankYes
PNC SmartAccess® Prepaid Visa® CardPNCYes
Regions Now® CardRegions BankYes
RushCard Prepaid Visa®MetaBankYes
TD Connect CardTD BankYes
TD Go Reloadable Prepaid CardTD BankYes
Turbo Prepaid Visa® CardGreen Dot BankYes
U.S. Money Prepaid MasterCardMetropolitan Commercial BankUnknown
Uber Visa Debit CardGreen Dot BankYes
Univision MasterCard® Prepaid CardMetaBankYes
Walmart MoneyCard®Green Dot BankYes
Wells Fargo EasyPay CardWells FargoYes
Western Union® NetSpend® Prepaid Mastercard®MetaBankYes