Getting your tax refund on a prepaid card is faster and more secure than getting a check in the mail. But is it the best option? Here are the pros and cons of using a prepaid card for your refund.
If you’re one of the millions of Americans getting a tax refund this year, you probably want to get it quickly, inexpensively, and perhaps most important, securely. Using direct deposit to receive your tax refund checks all the boxes.
You can use a prepaid card with direct deposit to get that tax refund, just like a checking account. But should you?
Pros of Getting Your Tax Refund On a Prepaid Card
Receiving your refund on a prepaid card can keep your money safe, get it to you faster, and save you money over cashing the refund check.
Reduces the Chance of Theft
The IRS recommends opting for direct deposit, over a paper check, for those receiving a refund. The reason is simple–checks can be stolen.
Stolen and forged refund checks comprise part of the $5.8 billion cost of tax return fraud. Few of us would consider leaving a $3,100 Amazon delivery on our front porch unattended, but leaving a tax refund check in the mailbox isn’t much different.
Using direct deposit with a prepaid card or bank account largely eliminates the risk. Funds go directly to the account, so no checks sit in the mailbox waiting for the unscrupulous.
Reduces the Chance of Lost or Returned Checks
Of the over 25 million refund checks sent out by the IRS each year, thousands are returned as undeliverable or are lost in the mail. Many times the issue is an address change or an error in the information.
While lost or returned checks can be reported to the IRS and traced, it can take from 6 weeks to a full year to receive the refund.
Receiving a refund on a prepaid card prevents the risk that the refund will be lost in transit or returned as undeliverable, even if your address changes.
Receive Your Refund Faster
Direct deposit to a prepaid card or bank account usually means receiving your tax refund weeks before those waiting for paper checks.
The IRS issues 9 out of 10 refunds within 21 days of acceptance for direct deposit filers. Many filers receive their refund in as little as 6 to 8 days. In contrast, paper checks take 6 to 8 weeks from the date the IRS received your tax return to process the refund.
Avoid Check Cashing Fees
Receiving your tax return on a prepaid card is free. But getting a paper check may cost you.
If you receive a paper check and don’t have a bank account, you may be in for some fees. Check cashing fees, for example, especially for large checks like a tax refund — can get expensive. Check-cashing stores generally charge a percentage of the check amount, and some even charge a flat fee on top of that. To cash a $1,500 refund check, for example, some stores charge a $5 flat fee plus 1%–that’s $20 off the top.
If you have a prepaid card, there are some cheaper options to load the check to the prepaid card, but free options generally take as much as ten days for the funds to be available. Many still come with some kind of fee.
Receiving your refund through direct deposit to your card skips the fees and the delay.
A tax refund is great. Getting a little extra doesn’t hurt either.
Some prepaid cards offer bonuses for receiving your refund on their card.
For instance, for 2018 the offered a bonus of up to $30 when you had your tax refund direct deposited onto the card. The Netspend® Visa® Prepaid Card offered $10 when using the card to receive the refund through TaxAct tax preparation software.
Cons of Getting Your Tax Refund On a Prepaid Card
Receiving your tax refund on a prepaid card has advantages. But there are some potential downsides.
Prepaid Card Balance Limits
All prepaid cards have card balance limits. That’s the maximum amount that can be on the card at any given time.
If receiving your tax refund on the prepaid card would cause you to exceed that balance, your card provider will reject the deposit. Prepaid card balance limits can range from as little as $1,000 to $15,000 or more. So, it’s important to make sure you have a sufficient maximum balance to be able to receive your refund.
If you don’t know your card’s maximum balance You can see check the maximum card balance of nearly any prepaid card using our prepaid card comparison tool or check your card’s terms and conditions.
Direct Deposit is Free but the Card May Not Be
Receiving your tax refund on your prepaid card is free. But having a prepaid card probably isn’t. All prepaid cards charge some type of fee. Many prepaid cards charge ATM fees or transaction fees that can whittle away some of your tax refund.
If you’re using a prepaid card to receive your tax refund, make sure you’re using a card that has reasonable fees. There are some prepaid cards that you can even use for free as long as you know how to side-step a few of the fees.
Alternatively, consider using direct deposit to a bank account. If you don’t have a bank account and you’ve had problems getting a bank account in the past, consider no-fee prepaid card alternatives, like Chime Bank, that don’t require a ChexSystems check to open an account.
Harder to Save
Tax refunds can be an excellent opportunity to save money. But as prepaid cards don’t pay interest, prepaid cards are typically not the best way to store money for the long term. A savings or investment account may be a better choice.
There are exceptions, however. Some prepaid cards offer high-interest savings accounts with the card, like the Netspend® Visa® Prepaid Card or the PayPal Prepaid Mastercard®. Both offer a savings account with a 5% APY on savings up to $1,000.
How to Get Your Tax Refund on a Prepaid Card
Getting your tax refund on a prepaid card isn’t hard. Just follow these simple steps.
- Choose Your Prepaid Card. If you don’t already have a prepaid card, consider how you plan to use your card and find an option with the lowest fees for your use. You can use our prepaid card comparison tool to start your search. Then apply for your card online. It’s almost always cheaper than buying in the store–usually free.
- Get Your Prepaid Card Routing and Account Number. All prepaid cards have an online portal where you can see your balance and transactions. Create an account and log in. Visit the direct deposit setup page within your prepaid card’s website. This page will have your bank routing number and account number, both of which you’ll need on your tax form. Note: Your account number is not the number on the front of your card.
- Enter your routing number and account number on your tax return. If you’re using tax preparation software, indicate you’ll use direct deposit and enter the account and routing number where indicated. If you’re still filing a paper tax return, enter your account and routing number under the Refund section. Indicate “Checking” as the account type.
A couple of final notes. Be sure that you’re depositing your tax refund on a prepaid card in your name. The IRS will only deposit funds in accounts where the owner’s name matches the tax return.
And don’t forget to complete direct deposit information for state refunds. Many states have stopped offering paper checks and send prepaid cards to filers who don’t opt for direct deposit. These prepaid cards often have high fees that you’ll want to avoid.
Receiving your tax refund on a prepaid card is can be a good option for tax filers without a bank account. Your refund will be more secure, you’ll receive your funds faster, and you’ll avoid check-cashing fees. But be sure to do your research to find the prepaid card with the lowest fees for you.