Why Using Debit Cards Can Be Dangerous

While the cost savings are significant for the employer, employees are subject to some additional fees with a payroll card. Some financial institutions issuing payroll cards charge monthly maintenance fees, which can range from $1.50 to $8, but these fees are often waived for the first year. Employees may also be assessed usage fees for each ATM transaction as well as a small fee — 25 cents to 50 cents — for each purchase used with a payroll card. Although these fees add up, people without bank accounts spend an estimated $30 a month to cash their checks and get money orders.

Mellody's Tip: If your employer offers debit payroll processing, be sure you understand the fees. In some cases, you may be better served opening a checking account and having your paycheck directly deposited. 6. What is a medical benefits debit card?

Some companies are also issuing medical benefits debit cards, which allow employees to make purchases with money set aside in a flexible spending account, or FSA. FSAs permit employees to contribute pre-tax dollars to an account established specifically to pay for medical expenses. Covered expenses include eyeglasses, birth control, dental work (not including cosmetic), co-payments for prescription drugs and doctor's visits, as well as many over-the-counter medicines, such as antacids, allergy medicine, cold medicine and pain relievers. The benefit of having your flexible spending dollars on a debit card is that your transactions are easily organized.

For those individuals who itemize their tax returns, this is especially useful as you can access a record of your annual purchases electronically. In order to ensure employees are using the medical debit cards appropriately, they are required to certify that the card will only be used for eligible health-care expenses and that the expenses have not already been reimbursed by another source.

Currently, 800,000 workers have medical debit cards, up from 60,000 three years ago, according to MBI, a leading provider of medical benefits cards. This number will likely grow with the creation of health spending accounts, or HSAs, in the recent Medicare legislation. HSAs permit employees to roll over money set aside for health care that is not used by year's end into interest-bearing IRAs. Alternatively, the money can also be carried over to cover medical expenses in the following year.

Mellody's Tip: If your employer does offer a medical benefits debit card, take advantage of this benefit. It will make your record keeping easier encouraging you to take advantage of the FSAs. 7. If you do not have a checking account, can you still have a debit card?

Partnering with UniRush Financial Services, hip-hop mogul Russell Simmons launched the Rush Visa Card in early 2003 to provide access to a prepaid debit/credit card to those without banking accounts or poor credit histories.

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