Social Security Debit Card Gains Traction

Here’s how to decide if this year-old card is right for you

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Social Security recipients became eligible to get their monthly payments on a prepaid debit card last year. Over half a million Americans have now signed up for the Direct Express Debit MasterCard offered by Dallas-based Comerica Bank. The card is aimed at Social Security recipients without bank accounts who use often expensive check cashing services to process their Social Security payments.

Damon Edgil, 32, of Birmingham, Ala., signed up to receive his Social Security Disability Insurance payments on the debit card two months ago and now uses it to pay bills online. Previously, Edgil used prepaid credit cards to pay bills, which charged him a $5 maintenance fee per month. Like Edgil, a whopping 95 percent of cardholders say they are satisfied with the card experience, citing convenience and immediate access to their money, according to a survey of cardholders by the U.S. Department of the Treasury's Financial Management Service released this week.

Most Social Security recipients are using these cards to make retail purchases, ATM withdrawals, and to pay bills. “It’s easier to go use my debit card than to have to go to a bank and get cash,” says Jonathon Bynum, 35, of Monroe, Ga., who doesn’t have a bank account and signed up to receive his Social Security disability payments on the debit card last year. Only between 19 and 29 percent of cardholder’s have a bank account, according to David Lebryk, commissioner of the Financial Management Service.

[Check out these 7 Things You Need to Know About the Social Security Debit Card.]

The debit card program has produced some success in limiting Social Security fraud. “In the past year we have had roughly 500,000 SSI checks that were lost or stolen,” says Lebryk. “We’ve really limited that problem to people who used paper checks.” The federal government also saves money by using automated payments instead of paper checks. Lebryk says it costs about $1 to issue and mail each paper check, while processing the debit card payments costs the government roughly 10 to 12 cents each.

About three-quarters of cardholders say fees associated with the debit card are equal to or less than what they paid before signing up, the Treasury’s survey found. But there are some debit card fees imposed on consumers who don’t carefully follow the rules. While the Direct Express Debit MasterCard has no sign-up fees, monthly fees, or overdraft fees, card users are only allowed 1 free ATM withdrawal per month. After that, cardholders are charged $0.90 per withdrawal, plus possible additional fees if an out-of-network ATM is used. A few other noteworthy charges: Receiving a monthly paper statement in the mail costs $0.75 per month, transferring money to your personal bank account comes with a fee of $1.50, and a card replacement (after one free replacement each year) will run you $4 per card. Also, if you plan to travel abroad in retirement, this might be a good card to leave at home. ATM withdrawals outside the U.S. cost $3.00 plus 3 percent of amount withdrawn and international debit card purchases also levy a 3 percent charge.

While many of these fees can be avoided with careful use of the card, some Social Security recipients are better served by having their Social Security payments directly deposited into their existing bank account. “I thought it would work like any debit card, but after I applied for it I found out that it is very restrictive,” says Shirley Rogers of Apple Valley, Minn. in an e-mail. “I could not find a bank or ATM where I could use it. It just wasn't worth the hassle.”

Tell us about your experiences with the Social Security debit card below.