Two months ago United announced a prepaid debit card that would earn miles.
At the time I wrote that it’s “[h]ard to imagine this will be lucrative earn relative to credit cards, or that people who use prepaid card as a financial tool … will find it wise to make product decisions based on United miles.”
Mileage-earning debit cards are mostly a thing of the past because the Durbin Amendment capped interchange rates for debit cards, it no longer makes sense to pay consumers to incentivize debit transactions. Indeed, debit cards are no longer a profit center so banks no longer compete for deposit accounts in order to get consumer debit card business. That’s a key reason why there are more hurdles to getting a fee-free checking account than there used to be.
However these limits do not apply to prepaid products and while there may not be huge crossover between the unbanked Americans and frequent flyers, travel remains aspirational and motivating of consumer behavior. And the prepaid space is ripe for increasing investment in rewards. So it’s not entirely surprising to see.
The prepaid space is growing in importance and has extra runway under a Trump administration and with questions about the future and status of the Consumer Financial Protection Bureau.
- $85 annual fee
- 1 mile per dollar spent (excluding PIN-based transactions) capped at 2500 miles per month
- Pays 5% annual percentage yield on the first $1000 balance on the card, 0.5% for amounts over $1000
I’m not prepared to say that “absolutely no one” should get the card and that it’s “a bad deal.” I think that’s wrong. But it’s useful only for a limited set of people.
This card is great for all six people in the country who are simultaneously unbanked (the card pays interest that helps offset its fees), who cannot get a credit card (which is going to have stronger earning potential), but who still spends enough money to make the rewards on this card worth the cost.
The unbanked who make over $500 a month in debit purchases each and every month may come out ahead of a non-rewards debit card.
Anyone who can get a credit card should spend on a credit card instead of this product. Anyone who spends less on debit cards will unquestionably do better elsewhere at lower cost (and even many spending more on debit cards should still probably look for lower fee products than building up United miles which devalue).