Prepaid Cell Phone Basics

Pros and cons of prepaid cell phones

Wireless carriers now see a huge untapped market when it comes to prepaid wireless, and there are more plan choices, a wider phone selection, a growing list of extra features and better pricing than there were just a few years ago. Overall customer satisfaction scores for prepaid wireless service increased substantially in 2007, according to J.D. Powers. And in their 2008 survey, results showed that prepaid customers who subscribed to flat-rate plans with unlimited minutes were more satisfied than those who used per-minute plans.

The benefits of prepaid wireless are pretty obvious: no monthly bill, easier-to-control costs, no credit checks and no long-term commitment. However, there's a laundry list of considerations that could ultimately make a regular, contracted cell phone plan the better option. If you're not sure which is best for you, see the companion ConsumerSearch report on cell phone plans.

On a per-minute basis, prepaid plans generally cost more than a contract plan. For example, one of T-Mobile's prepaid plans costs $25 for 130 minutes. That works out to about 19 cents per minute. If you signed a long-term contract with T-Mobile, a $50 monthly plan would buy you 1,000 anytime minutes at a cost of 5 cents per minute, plus unlimited nights and weekend calling. So it's pretty easy to see that buying more expensive monthly plans can be a better deal, especially if you make more than 130 minutes of calls per month.

In addition to per-minute charges, some prepaid wireless plans charge a daily access fee, so it's worth calculating your daily use. For example, even though the Verizon Wireless INpulse plan has a low 10 cents-per-minute rate, Verizon charges 99 cents per day when you use its service. AT&T's 10 cents-per-minute plan is virtually the same, charging a $1 access fee in addition to per-minute charges. AT&T's 25 cents-per-minute prepaid plan costs more per minute, but there's no daily fee.

Paying a daily access fee for a plan usually gives you a lower per-minute rate, which might be a good deal for heavy talkers, but reviews say people who want their phones for emergency or quick calls will probably be better off spending a bit more per minute or going with a plan that doesn't charge an access fee. Some small carriers are a better deal. We didn't find many reviews for Net10, but calls cost 10 cents per minute with no daily access fee. Extras such as text messaging, mobile e-mail, picture messaging or calling from outside of your calling area (roaming fees) will still generally cost more.

Some carriers have an "autopay" plan in which you are charged each month but without a long-term contract. This type of plan may have a cheaper per-minute rate with no daily access fees. For example, TracFone has a reasonably priced $5.99 autopay plan, whereby your phone is kept active for a 30-day extension period. Then you pay for minutes on top of that. $20 buys you 100 minutes and $30 buys you 150 minutes. Others carriers offer options to automatically buy additional time at preset intervals or when minutes expire, resulting in an even lower per-minute rate. Virgin Mobile's $25 monthly plan allows users to pay in advance every month, and it includes 200 anytime minutes plus 500 night and weekend minutes.

With prepaid wireless plans, your pay-as-you-go minutes don't last forever. Some plans' minutes expire after a set number of days (usually 30, 60, or 90 depending on the amount purchased), so if you don't use your minutes, you lose them. Most carriers require that you spend a certain amount each month (or every 60 or 90 days) to keep your account active, even if you still have minutes or cash remaining in your account. Many carriers allow your unused minutes to roll over to the next month if you deposit more money before they expire. Finally, if you spend more money up front, your minutes will often last longer. T-Mobile, TracFone and AT&T have annual rate plans; if you spend $100 on prepaid time, your minutes last an entire year.

In addition, some prepaid wireless plans charge higher per-minute rates but include free night or weekend minutes, or they offer unlimited calls between you and another subscriber using the same carrier. With AT&T's 10 cents-per-minute pay-as-you-go plan, for example, calls to other AT&T subscribers are free.

Other costs can include roaming fees (which apply when you're outside your network's calling area), long-distance charges (particularly for international dialing), text and picture message fees, and charges for games, music or ringtones.