One in four U.S. households doesn’t use a traditional bank, and financial institutions now classify an alarming percentage of the population as “unbankable.” Many consumers are unable to open a checking account, which means they don’t qualify for a credit card or debit card. This has led to a rise in pre-paid debit cards, in which consumers deposit funds that can be spent anywhere Visa and MasterCard are accepted, without risk to issuing banks or credit unions. These cards are something of a necessary evil as they enable the unbankable to use everyday services that require a credit card, but the fees can be high.

It’s easy to overlook the privileges of a checking account and credit card, but with consumer commerce fast transitioning towards a cash-less culture, functioning in today’s society without plastic is near impossible. Without a debit/credit card, one can’t make a hotel reservation, rent a car, book a flight or shop safely online.

Today, more than 7 million consumers use prepaid cards, including nearly one in five Gen Y and countless “underbanked” consumers. In 2009, $28.6 billion was loaded onto prepaid cards, an amount expected to climb to $201.9 billion by next year.

Financial institutions implemented prepaid cards as a last resort for consumers who don’t qualify for traditional bank accounts, but many financially healthy customers like the card for an unexpected benefit: sending money to minors or college students. Parents load spending/emergency money onto the card and can track how much their child spends and where. Many find the cards appealing for college students because cardholders can’t overdraw the account, and without a credit line, users can’t cause long-lasting damage to a credit score.

Despite its high demand, many financial advisors view the product geared at underbanked consumers as predatory; mostly because the unregulated cards can charge high fees. Also, most cards don’t report back to a credit bureau and won’t improve a credit score.

Consumers can limit or avoid high fees with some pre-planning and reviewing card disclosures. Look for a prepaid card that doesn’t charge each time you add funds, or be sure to add funds through the card’s approved vendors. Also, consider a card that waives monthly fees for setting up direct monthly deposits or for carrying a minimum balance. Some cards reduce fees if the entire amount loaded on the card is spent before each monthly statement date. For example, if a cardholder loads $300 onto a prepaid card, he or she must spend all $300 before the end of the month to avoid a fee. The key is to review disclosures because every card is different.

Prepaid cards provide a necessary service to unbankable consumers and a great tool for parents, as long as cardholders know the rules.

Annie Wilkinson is executive vice president of Dade County Federal Credit Union; www.dcfcu.org.