With school out, millions of teenagers are loose upon the land, many of them traveling about with wads of spending money.
So what happens if they lose it, or need a resupply hundreds of miles from home?
The banking industry has devised a range of pre-paid, or value-added cards to handle just this situation. They work like credit or debit cards, allowing purchases and ATM withdrawals. But parents are in control, typically using web sites or the phone to reload funds and keep track of their children’s spending.
Banks promote these cards as a convenient way to teach responsible habits, a kind of bridge between the cash-only finances of young children and the full-blown credit card many parents think too risky to hand over to a teenager.
Teen-oriented cards typically do not permit overdrafts, so parents know their children will not spend more than permitted.
But careful shopping is wise, as fees can be substantial for frequent card use. In many cases it can be cheaper to set up a checking account with a debit card, and just as convenient.
One of the best-known teen products is the Visa Buxx Card, which can be used anywhere a Visa credit or debit card is accepted. Offered through Wachovia (Stock Quote: WFC), National City (Stock Quote: NCC) and several other financial institutions, it protects the user from any unauthorized use.
But fees can add up. If a merchant such as a gas station does not check that the account has enough money to cover a purchase, a $20 overdraft fee can be charged.
It costs $2 to reload the card through a non-Wachovia account. After making two free monthly balance inquiries at an ATM, the account charges 50 cents per inquiry. The first two ATM withdrawals per month are free. After that they are $1.50.
The Current Card offered by Discover Financial Services (Stock Quote: DFS) is much like the Buxx card, also providing zero liability for unauthorized use. There is a $5-per-month membership fee, or $50 a year if paid at one time. This card allows four free ATM transactions a month, then charges 50 cents each.
The Allow Card offered by MasterCard (Stock Quote: MA) emphasizes parental controls like limits on daily sums that can be withdrawn from ATMs. It has an access fee of $3.50 per month, and every ATM withdrawal costs $1.50.
Since these cards do not charge fees for merchant transactions, they can be economical if that is their chief use. They can get expensive if the child hits the ATM every few days.
Before settling on a teen-oriented card, consider opening an ordinary checking account that provides a debit card. Wachovia, for example, has a Free Checking Account with no minimum balance or monthly fee. It provides unlimited free transactions at Wachovia ATMs. Transactions at non-Wachovia machines are $2.
Use the manybanking.com search tool to find good interest-bearing checking accounts. But don’t make interest earnings a major factor. With the average interest checking account paying just 0.152 percent, according to the manybanking.com survey there’s not much money to be made through interest.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.