Financial Resource Center

Prepaid Calling Cards: A Real Deal?

by Anna Thayer / June 24th, 2002

Prepaid calling cards are hot. Their convenience--you pay in advance so there are no bills to deal with later--coupled with their rates--usually six cents or less per minute--earned the prepaid calling card industry just under $3 billion in revenue for 2001. But, while prepaid calling cards are gaining popularity and rates are going down, there still are a lot of consumers who don't know about the industry and who don't use the cards. Here, we give you the information you need to start shopping for a prepaid calling card--card types, the benefits, the pitfalls--and how to choose the right card for you.

Card types

Prepaid calling cards are phone cards that allow you to purchase your time in advance. This differs from traditional calling cards where you receive a monthly bill for your calls after you make them. There are two basic types of prepaid calling cards: nonrechargeable and rechargeable. A nonrechargeable card becomes worthless once the amount of credits you initially bought runs out. Nonrechargeable cards generally are the best buy if you don't intend for your card to replace your regular phone service. For example, they're useful for calling home while on vacation. You can add credit to rechargeable cards by calling a toll-free number. Usually credit is added at a cheaper rate than the card's initial value. The benefit to rechargeable cards is that you never have to buy a new one. However, before buying a rechargeable card, find out if the company charges a one-time activation fee or if it charges recharge fees every time you add minutes to the card. There are different cards available depending on where you plan to call to and from. If you're traveling abroad and want a prepaid calling card so you can call home without spending too much money, make sure that the card you're buying has international origination--you can call the U.S. from that country. In addition, there are cards that offer better rates for long-distance domestic calls or long-distance calls from the U.S. to a specific foreign country. According to Imke Mensah, senior prepaid analyst at Atlantic-ACM, an international research firm in Boston, "Many prepaid cards specify a region of the world or a country they have good rates for, so be sure to check out cards specifically for the countries you will be calling."
Look at the fine print before making a prepaid calling card purchase.

Benefits of prepaid calling cards

There are many benefits to using prepaid calling cards--the main one being that they can save you money. According to Mensah, "Savings can be found on domestic and international long distance calls from payphones and hotel rooms, as well as international calls made from home phones." Other benefits include:
  • Convenience. Prepaid calling cards are an easy way to make a long distance call from someone else's phone without that person being charged.

  • Protection from fraud. If you lose a regular calling card, you could end up responsible for all the calls made on it from the time of loss until you report it missing. But if a prepaid calling card is lost, your loss is limited to the value of the card.

  • Budget control for teens, as well as business or military travelers. By giving individuals in these groups a prepaid calling card, you choose--and limit--the amount of money that can be spent on phone calls.

Pitfalls of prepaid calling cards

Despite their bennies, prepaid calling cards do have some pitfalls that consumers should be aware of. Hidden fees are the most common problem. Some hidden fees include: monthly fees that are deducted from the amount left on your calling card, connection fees for each call you make, and payphone surcharges. In most states, it's illegal for card companies to not reveal their fees. However, that doesn't mean they are going to make it easy for you to find those fees. "Many companies show the fees and surcharges, neither of which are illegal, on the part of the card packaging that is usually thrown away directly after purchase," says Mensah. "This way the company complies with the law by showing the fees, however they also know that they will likely be discarded." So make sure that you look at the fine print and understand all the extra fees and surcharges before buying a prepaid calling card.
Don't assume that the rate advertised is the rate you will get for all calls.
Besides hidden fees, other card pitfalls include:
  • Charges for calls made when no one answers the phone.
  • Advertised rates that aren't the same across the country, or at all times of the day.
  • Expiration dates. Most nonrechargeable cards expire six months after their first use.
  • Customer service lines that are frequently busy or not available 24 hours a day.

Avoiding the pitfalls

The best ways to avoid prepaid calling card pitfalls are to ask questions, do thorough research, and read the fine print. If you still have unanswered questions, go directly to the source. Call the card company's customer service number to get answers to your questions. If they aren't willing to answer your questions, then they probably aren't a good company to buy a prepaid calling card from in the first place. To know the right questions to ask, you have to know what you want from a card. Know where you will call the most and how frequently you will be calling. The type of card to buy will vary according to your personal calling characteristics. If you would like more help in choosing a card and researching card companies, there are a variety of resources available. A good place to start is the Better Business Bureau, which can let you know if there are any reported problems with the company you're researching. In addition, you can contact your state's Public Utility Committee or attorney general's office. If, after all your research, you still are worried about pitfalls, it's best to go with a well-known company. You might not get the best rate available, but at least you know you're dealing with a reputable company. Prepaid calling cards can be a convenient way to save money, as long as you are aware of the potential pitfalls. No one card is perfect. The key is to find which card is perfect for you. Do your research before making a prepaid calling card decision, and when you do buy a card, buy a small amount initially. You can buy more once you're sure the card is a good fit for your personal telephone needs.
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