In South Carolina this year, state income tax refunds will be delivered on prepaid debit cards unless a taxpayer has a refund directly deposited to a bank account, or requests a traditional check.
For the state, contracting with Bank of America to issue debit cards saves money, compared to processing and mailing paper checks.
For those without a bank account, a debit card may be preferable to dealing with check-cashing fees.
But for most people, those debit cards could amount to an unnecessary expense.
The fact that they come with a "schedule of fees" is a good clue that most people would be better off getting their refund a more traditional way.
Yes, the income tax refund debit cards come with fees. They aren't very large fees, but why pay any money to get access to your own money?
Here's how the cards work.
If you're owed a South Carolina refund, and don't arrange for direct deposit or check the tax form box indicating you want a paper check, the state Department of Revenue will transfer the money to Bank of America, which will create an account and issue a debit card.
The card is a prepaid debit card that can't be reloaded, sort of like a gift card. It can be used to pay bills, or withdraw cash, and the funds can be transferred from the card to a bank account, although this can take up to seven business days.
The fees come in to play if the card is used to withdraw money from an ATM in the United States that's not owned by Bank of America, or at any ATM outside the U.S. The fee is at least $2.50 each time.
Want to close your account? That will cost $5.
There are a few other fees, but most people wouldn't likely encounter them. If you lose your card, you can get a free replacement, but another replacement card will cost $5, or $15 if you want express delivery.
Using the card to withdraw money at a financial institution that accepts Visa is free the first time, but $10 thereafter. Additional fees apply to foreign transactions.
If you don't bother closing the account once the card's out of money, and never use a non-Bank of America ATM, and don't use the card outside the U.S., and don't repeatedly lose the card, you could avoid paying any fees.
But why bother? Having an income tax refund electronically deposited to a bank account is the quickest way to get a tax refund. If you end up with one of these cards because you forgot to check a box on your tax form, you can withdraw all the funds on it at your bank and deposit the cash, with no fee as long as it's your first bank withdrawal from the card.
Now, for those without a bank account, South Carolina's tax refund debit card looks like a good option. The other choice would be getting a paper check and paying to cash it.
It is surprising how many people don't have bank accounts considering all the no-fee options that exists, but studies say the numbers are substantial.
For people in that situation, here are the good things about getting a state refund on a debit card: It's possible to use the card like a debit or credit card, but without paying fees; the card has a zero-liability policy to protect cardholders against fraudulent transactions ("subject to certain conditions"); and because the card can't be reloaded, it can't be overdrawn and subjected to overdraft fees.
While the state's tax refund debit cards seem unnecessary for people with bank accounts, they compare favorably to products offered for federal tax refunds by commercial tax preparers, which can carry fees for every ATM transaction and even for checking the balance on the card.