General-purpose reloadable prepaid cards are emerging as a savings vehicle for low-income individuals, according to a new article from the Federal Reserve Bank of Boston’s Communities and Banking magazine.
“GPR card companies that offer savings pockets have indicated that they are seeing consumers utilize the features to set money aside, but for extremely short periods of time—weeks, not months,” the article said. “[C]onsumers are not going to be suddenly saving large sums simply because a savings pocket has been added to a card. However, saving even a small amount of money, and thereby changing savings behavior, can begin a process toward financial stability with the potential for long-lasting positive effects.”
The article cited results from a pilot study called “Rainy Day Reserve,” which offered a free, non-interest-bearing savings option to prepaid card holders that included automated savings options and reminders of savings goals before making withdrawals. According to the study, Rainy Day Reserve participants loaded more money onto their cards in more transactions and saved 10 percent of loaded funds — versus 1 percent for non-participants.
The article noted that prepaid card load volume is growing rapidly, doubling from 2009 to 2012, and that households with income of less than $25,000 are two-and-a-half times more likely to own a prepaid card than households with income of $75,000-$100,000.
