Social Security Debit Cards: 7 Things You Need to Know

If you don't have a bank account, your days of dealing with paper checks are over.

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Social Security recipients can now get monthly payments on a prepaid debit card. The Direct Express Debit MasterCard is being rolled out in 10 states by the Treasury Department and Dallas-based Comerica Bank. It's an alternative to paper checks and direct deposit. But as with every financial product, there is some fine print. Here's what you need to know about the Social Security prepaid debit card.

Better than checks. The card is aimed at folks without bank accounts. About 4 million Americans on the Social Security payroll are "unbanked" and must receive paper checks, which are vulnerable to financial crimes like check fraud and more minor problems such as delivery delay. There's also the issue of where to cash them. "They have to use check-cashing services," says Bill Hardekopf, CEO of the credit card comparison website LowCards.com, about people without bank accounts. Check-cashing services can average $40 per payroll check, according to the Brookings Institution.

The southern states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, and Texas will receive information about the debit card first because they have more low-income Americans without bank accounts than other areas of the country and are the most likely to be hit by nasty weather like hurricanes that can delay checks, according to Judith Tillman, the Treasury Department's Financial Management Service commissioner.

Use free services. There are no sign-up fees, monthly fees, or overdraft fees, which plague the users of many other prepaid cards. And no credit check is required to enroll. "With this particular card, the fees aren't as high as many of the other prepaid cards," says Michelle Jun, a staff attorney for nonprofit Consumers Union. You can get access to the cash loaded on your card from a bank or credit union teller or as cash back with purchases at retailers. You can also set up free "low balance" alerts when the account balance falls below a certain level and notification of deposits by phone, e-mail, or text message.

Watch out for ATM fees. Debit card users can withdraw cash from Direct Express network ATMs free once a month. Additional cash withdrawals at network ATMs, which include Comerica Bank, Charter One, Privileged Status, Alliance One, PNC Bank, MasterCard ATM Alliance, and MoneyPass, are 90 cents each. If you use a nonnetwork ATM, you will be charged two fees: the Comerica 90-cent fee and a surcharge by the nonnetwork ATM, which can be as much as $3. To find a network ATM, you can use an ATM locator feature at USDirectExpress.com or call (800) 741-1115. Unused ATM withdrawals can be carried over from one month to the next.

Dodge international fees. If you're going to be traveling abroad in retirement, you may want to leave your Social Security debit card at home. Comerica charges $3 and 3 percent of the amount withdrawn to use ATMs outside the United States in addition to a possible surcharge for using a nonnetwork ATM. For debit purchases in foreign countries, you'll also be charged 3 percent of the price.

Other fees to avoid. A paper statement mailed to you costs 75 cents per month. This fee is easily avoided by checking your account balance online and printing it out. But try not to pay any bills while you are logged in to Comerica's website, or it will cost you 50 cents per bill. Instead pay bills online at the merchant or utility's website if it accepts MasterCard. And hold on to your card. After one free replacement each year, it will cost you $4 per card—and an extra $13.50 if you need to have it delivered overnight.

Report fraud quickly. If your card is lost or stolen, the amount of money you could lose depends on how quickly you notify Comerica. If you call within two business days, you may lose up to $50, but if you wait longer, you could lose up to $500. For fraudulent transactions, you need to let Comerica know within 90 days to limit your loss to $500, or you could be stuck paying an even larger amount. (For most other debit cards, you have only 60 days. The Department of the Treasury negotiated an extra 30 days of protection for the Direct Express card.) MasterCard says you will not be held liable for an unauthorized use of your card involving a signature-based transaction where your pin number was not entered.