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Should your tax refund go on a prepaid card?

how long to get your tax refund


  • A tax refund can be directly deposited onto a prepaid card in as few as 10 days.
  • Your prepaid card and its fees could "nickel and dime" your tax refund.
  • A tax refund into the bank or an IRS check may cost less than a prepaid card.

Getting your tax refund back on a prepaid card may sound convenient, but does it make financial sense?

For those without bank accounts, a prepaid debit card may be the fastest way to get an income tax refund. It's an option offered by all the major tax preparers. But for those with bank accounts or who can wait a little longer, choosing to direct deposit into a checking or savings account or simply holding out for the traditional government check may save money.

'I need my money now!'

The average tax refund last year totaled $3,000 -- not a paltry sum for most households. Seven in 10 of those refunds were directly deposited into taxpayers' accounts, according to the Internal Revenue Service.

"You're going to get it quicker, and it's going to be more secure than a check," says David Newville, senior policy analyst at the Center for Financial Services Innovation.

Direct deposit isn't just for bank accounts, either. Refunds can be loaded up on a prepaid card and treated as direct deposits.

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That means taxpayers without bank accounts who want their cash ASAP can choose direct deposit. Additionally, if they e-file their tax return, the IRS will send the tax refund back in as little as 10 days, according to the agency's website.

States such as New York, Georgia, Louisiana, Oklahoma, Connecticut and South Carolina also give taxpayers the option of receiving state tax refunds on prepaid debit cards issued directly from the state. Check with your state's

tax or revenue department online to find out.

A budget helper?

Have a special project in mind for that tax refund but worried the money will disappear quickly amid your everyday purchases? Putting an income tax refund on a prepaid debit card is one way to keep the money separate from other accounts.

"You might not want to dump it into a bank account because it might get lost in day-to-day charges," says Ben Jackson, a senior analyst of Mercator Advisory Group's Prepaid Advisory Service.

Of course, there are other ways to keep your tax refund from commingling with your other money. Consider depositing the refund into a savings account you don't use.

Or put the tax refund into a short-term certificate of deposit. Your refund will earn interest (though not much in this interest rate environment), and you won't be tempted to withdraw money before the term is up because you will likely pay a penalty. It's a good way to keep undisciplined budgeters from spending earmarked money.

Watch out for fees

The biggest downside to receiving your income tax refund on a prepaid debit card is the myriad fees that come with the cards.

"You have to pay to access your own money," says John Ulzheimer, president of consumer education at "You're going to see your hard-earned tax refund nickeled and dimed to death with fees."

A prepaid card can feature an enrollment fee, a monthly maintenance fee, ATM withdrawal fees, ATM balance inquiry fees and a fee to convert the remaining balance into a bank check, among others.

"If you have a bank account, there's no advantage whatsoever to getting your tax refund on a prepaid card," says Joe Ridout, consumer services manager for Consumer Action, a San Francisco-based consumer advocacy group. "You needlessly would forfeit some of your tax refund with the fees that come with these cards."

Category: Taxes

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