I'll avoid Chase's new prepaid debit card and so should you

Chase logo on building

Chase Bank is offering a new prepaid debit card called Chase Liquid.

The company says this card will let holders access bank branches, automatic teller machines and online bill-paying services, all without having a bank account.

Better still, Chase says this card will have some of the lowest fees in the banking industry.

That's nice.

For all I know, this new product might be a really good deal, if you want a prepaid debit card. But I didn't like prepaid debit cards before Chase announced this product, and I still don't like them.

These cards represent a sort of banking account lite.

Middle-class people give and receive them as gifts and use them as a way to give kids an allowance, but that's not the way they're used most often. Banks issue them to people who either don't qualify for a bank account or who want to fly under the radar somehow, without the documentation a bank account would provide.

That description probably covers a few criminals, but mostly it covers people who are either too poor to maintain even a small minimum bank account balance or who are undocumented workers. Or both.

This is not typically a financially sophisticated population. Banks know that.

But they still persist in selling these cards without really revealing, in plain English and big print, the ways that prepaid debit cards work in the bank's favor.

These cards don't have any automatic liability protection.

If you load your kid's allowance on a prepaid debit card and your kid loses that card at the bus stop tomorrow morning, the bank may give you another card that's loaded with the same amount of money. Or it may not.

The bank either helps you or not, at its own discretion, because there isn't any law that ensures you'll get your money back if something goes wrong.

You don't get any protection if your bank goes out of business, either.

People with checking or savings accounts are protected by FDIC insurance, which repays up to $250,000 per account holder if the bank fails.

But even if your prepaid card was issued by a bank, there is no guarantee the money is insured. It's definitely not insured if the issuer isn't a bank.

You'd think that a prepaid debit card is just that, and that when the card runs out of money, you run out of spending power.

But some debit cards give holders "overdraft coverage," sometimes also called "advance on direct deposit."

These are essentially payday loans. They can sock you with as much as 300% interest and trap you in an escalating cycle of debt.

Prepaid cards also are notorious for charging fees.

Depending on the card, you may pay separate fees when you get the card, make purchases, add money to the card, make an ATM deposit, make an ATM withdrawal (especially at an out-of-network ATM) or even call to talk with customer service.

The fees add up fast.

Perhaps worst of all, prepaid cards are worthless for people who want to establish financial track records.

You'll never get a mortgage based on how well you've handled your prepaid card.

Your banker will never want to talk with you about arranging business financing or setting up remote deposit. These cards effectively disenfranchise people from access to the money that is our society's lifeblood.

Don't use a prepaid debit card if you can help it.

A low-cost checking account is nearly always a better deal. If you just want to keep track of how much you're spending, get a checking account and regular debit card.