Your salary goes plastic with payroll cards

While credit card issuers have been under fire for their traditional products and have seen dramatically declining application and approval rates for new customers, they are diving headlong into a new and burgeoning sector: Payroll.

Increasingly, big employers are opting to deposit employee paychecks onto Visa, Mastercard, or American Express prepaid cards.

The incentives for employers, especially big corporations with hundreds of thousands of employees, are obvious.

Processing and mailing paper checks costs money. From printing to envelopes and stamps there are hundreds of little expenses. It's even worse when checks go uncashed or unclaimed. A handful of employees who don't cash small checks for expenses or their last weeks of work leave the books a mess.

Simply depositing an employee's paycheck onto a prepaid Visa credit card eliminates the extra expense and the headaches for a big company's business department.

The credit card issuers who handle the payroll cards do not typically charge much of a fee, if they charge one at all, to employers who chose to use their services.

But the employees who accept payroll cards instead of direct bank deposit or paper checks are not quite as lucky.

The cards have been touted as a great solution and brilliant innovation for employees who do not have bank accounts. In many cases, numerous web sites report that the fees employees pay are usually lower with payroll cards than they are for cashing paper checks without a bank account.

And the money is safe. In 2008, the United States Supreme Court ruled that the funds on Payroll cards are FDIC insured.

But payroll cards are still significantly pricier than direct deposit or even paper checks for employees who do have traditional bank accounts.

There's a seemingly endless list of fees charged to payroll cardholders. Some examples include: Fees for ATM withdrawals, inactivity fee, a point of sale purchase fee for in-store purchases at registers, a fee after a certain number of transactions, an overdraft fee, a fee to close the account, and a fee to have your money returned by check.

Payroll cards are a good solution for those who can't get bank accounts, like foreign employees. But the downside should also be carefully weighed when employees are deciding whether or not to opt for them.

-Amanda H. Miller