Are you expecting a tax refund this year? If so, you may already be thinking about how you’ll receive your money (and how quickly).
Being able to receive a tax refund in the form of a direct deposit is great news for some. You just sit back and get your refund added to your checking account in about two weeks.
This is much better than waiting the six to eight weeks it takes for a paper check refund to arrive. Plus, you avoid the hassle of schlepping to your local bank to deposit the check, the cost of using a check-cashing service (if you don't have a bank), or the worry of the check not making it to your mailbox safely.
For those who do not have a checking account, however, the benefits of direct deposit are elusive. According to the FDIC, about 33.5 million households in the U.S. are underbanked or unbanked. This is no small issue.
To make matters worse, those without bank accounts often turn to tax refund anticipation loans. These short-term loans come with extremely high interest rates, and are really no better than a payday loan. While they do give you access to your refund immediately, the fees can eat into a substantial portion of it.
Fortunately, there is an extremely low-cost alternative for those who don't have the option of direct deposit and don't want to wait for a check. You can have the IRS deposit your tax refund on a prepaid credit card.
How to Set Up Direct Deposit
Setting up direct deposit of a tax refund to a prepaid or debit card is simple. It's really no different than setting up direct deposit of a paycheck to a checking account.
You'll need two pieces of information: (1) the routing number associated with the prepaid or debit card; and (2) the account number. The key here is that the routing number and account number are not on the prepaid or debit card itself. The number on the card is not the same as the account number.
While this may seem confusing, most prepaid or debit card issuers can help.To get the routing number and account number, contact the company that issued the prepaid or debit card you've decided to use. Some even have online tools that can generate the routing number and account number for you. With most of the cards mentioned below, check out the tax links provided to learn more.
Prepaid Cards that Offer Direct Deposit of Tax Refunds
Here are a few of the top prepaid cards that offer direct deposit of tax refunds. Some of them make it easier than others to set up a government direct deposit, and a few of the cards even offer online guides specifically for tax returns.
Netspend is a popular reloadable prepaid card for those wanting to manage their money. It offers a mobile app to track your finances. You can also deposit checks with the app.
They also help walk you through the process for depositing your tax refund. Once you have the card, you can log into your account online. From there, Netspend provides the account and routing numbers you'll need for direct deposit of your refund.
There are three different monthly plans to choose from, based on your spending habits and needs. The monthly fee ranges from free to $9.95, and transaction fees are either free or $1.50 each. ATMs are $2.95 for domestic withdrawals and $0.50 for balance inquiries.
Here's a quick summary:
- Initial cost: the first card is free, unless you want a custom card ($4.95 each)
- Monthly fees: $0 (Pay-As-You-Go), $5 (Reduced Monthly Plan) or $9.95 (Premier)
- Transaction fees: $1.50 each with PAYG plan; transactions are free with Reduced Monthly Plan Premier
- Direct deposit fees: None
- ATM fees: $2.95 per withdrawal, $0.50 per balance inquiry
- Add money to your account: Free with direct deposit; third party fees vary at retail locations
- Supports tax refund direct deposit? Yes
- Mobile app? Yes
- Customer service? No fee to email or call a customer service agent with general questions or to manage your account through the app. If you choose to have an agent facilitate a transfer, check your balance, etc., fees apply.
Tax Refund Prepaid Cards
If you don't have a prepaid card, but want to take advantage of direct deposit, it's easy to get a card. In fact, applying is easier than getting a credit card or bank account because there are no credit checks or ChexSystems inquiries. In fact, so long as your identification information checks out (like your social security number), approval of prepaid cards is guaranteed.
In contrast to the cards here, you should be very skeptical of prepaid cards offered by tax preparers. The problem with these cards is that they often come with extremely high fees. For example, H&R Block offers the Emerald Prepaid MasterCard, but there have been complaints about the high expenses associated with the card. The key is that whatever you decide, make sure to read the fine print and understand what fees you’ll have to pay.
One final note: if you have a large refund due to you--and you want to avoid making such a large interest-free loan to Uncle Sam--talk to your employer about changing your W-4 form. You may be entitled to claim more allowances, which would reduce the amount of money withheld from your taxes.