Prepaid Cell Phone Plans Save Money But Remain Unpopular with Consumers

By Anne Marie D. Lee, dealnews contributor

You might have heard a lot about prepaid phone plans of late, largely due to the magnanimous occasion of iPhones becoming available for pay-as-you-go plans. You might also have wondered if prepaid is truly a cost effective option in this day and age. The New York Times did the math and discovered that, yes, prepaid phone plans generally offer lower monthly service rates on mobile phones that are purchased at full price. But the Times also points out that, despite this, prepaid plans haven't swayed many customers to switch.

This may have something to do with the initial cost. There are no contracts involved, so there is no subsidized smartphone pricing. Thus, a new iPhone will cost significantly more than one with a 2-year contract attached to it.

Despite the hefty initial investment, the monthly cost of a prepaid phone plan is often one third or less than what most people pay under traditional contract-based service subscriptions. The Times estimates that the cost of a prepaid iPhone with Virgin Mobile over a 2-year period is $1,000 less than an iPhone with a 2-year contract on AT&T. Moreover, prepaid service plans offer unlimited data, which is unheard of on most contract-based plans.

And yet, in spite of the prospect of a better bargain, cell phone users in the U.S. have not flocked to prepaid plans the way they have in other countries. In Europe and Asia, contract-free plans are the norm. But according to research cited in that same Times story, only 23% of wireless customers in the U.S. utilize prepaid phone services.

While 23% may not look like much of a following, over the past three years, the U.S. prepaid market has been growing steadily. Keep in mind, limited service options and basic mobile device offerings have long relegated prepaid phones to a kind of underclass of cell phone service. Those perceptions, however, are rapidly changing as the growing demand for usage-based charges push more prepaid cell phones into the market. However, the biggest game changer by far is the recent introduction of the Apple iPhone into the prepaid phone market.

If you're considering leaving the contract world for prepaid, here's the first thing you need to know: Opting out of a contract agreement to a prepay plan will require you to buy a new phone, and vice versa. An exception to that rule may be if you're switching from contract to prepay under the same cellular carrier, such as Verizon. But, even then, you still may be required to purchase a new phone since not all Verizon phones are eligible for prepay plans. Incidentally, all nationwide mobile networks offer prepaid plans.

If you're starting your search from scratch, having a specific phone model in mind, such as an iPhone, will narrow your carrier options down substantially. Of today's top prepaid carriers only two currently offer the iPhone: Cricket and Virgin Mobile. Another top prepaid carrier, Boost Mobile, online sources say, will be following suit in September.

Next, search for critical reviews of any carrier, and don't be afraid of scrutinizing features and services, as sometimes seemingly straightforward claims can be misleading. For instance, online reviews of Cricket emphasized the need for quotation marks around its "unlimited plan," which consumers found to be more applicable to voice than data. Under Cricket's $55 "unlimited plan," consumers discovered a 2.3GB fair-use cap on data.

Do you pay too much for cell phone service? Should you go the prepaid way? What bothers you about contract service plans and what stops you from switching to a no-contract plan? Sound off in our comments section below.

Front page photo credit: Gadgetic World

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low data users will love because you only pay what you use. supports iphones and newer android only downfalls are it uses Sprints network and no roaming.
After getting astronomical bills from Verizon, billed for days without service as they have few towers or connections in the Western US, states like Wyoming, Utah, Nevada, etc. where we worked often, I switched
to ATT's pre-paid service.

COMPLAINT - ATT obligates a customer to buy $25.00 plus fee, every three months, whether or not you have dialed from their service. As a result, you are feeding ATT your cash. And cash, and cash, specially
if you have little need for a phone. The friendly programs, minimum $10.00 a month for emergencies are
gone. And it still is expensive to spend that money for one call to American Express towing service.

Who does have a reasonably priced pre-paid? With $40 dollar monthlies, the monthlie is still looking good.
As with ANY cell phone decision - start with the CARRIER first. Use their coverage maps to see who has the best coverage in the areas that you are most likely to be. Zoom right in to to see if you can still get a signal at your home. We recently tried Virgin pre-paid but had a zero to one bar signal at home, making it totally unusable. In all other respects it looked great on paper. Her'e the catch - you cannot know if it will work until you sign up and try to use it. Even though Verizon was unusable for me, I still got no refund for a month's service. Since then I have found a site that shows real world signal maps from users of all carriers at that can also be useful to see what coverage is REALLY like. I ended up on PagePlus - a Verizon no-contract carrier for $30 a month instead of $70.
Gio In LA
Prepaid is the norm in Asia and Europe - MUCH more popular than here. Why?
My minutes on my Hong Kong SIM card are good for 6 months.
My minutes on my Italian SIM card are good for 1 year!
AND - you can recharge your card at nearly any newsstand, 7-11, etc. and any recharge renews the time period for ALL your time.

In the USA minutes expire every month. Why is that? We have paid for them!

In addition, the time is so cheap that I can hardly use it up - even calling the USA at 6-10 cents a minute. We are being so gouged here in the USA.
Thanks for this great info! I have been wanting to switch carriers because my contract is finally up, and I think I am going to go into a to see how much it would cost me with a plan vs. without a plan. 
I know this article is about prepaid, but has anyone here heard of the cell carrier Solavei? They aren't prepaid, but they are a contract free low cost carrier. For only $49 a month you get everything you need: no contracts, unlimited voice/data/text, 4G, and you can bring your own GSM phone. My friend turned me on to them and it sounded too good to be true, but after jumping between other budget carriers I tried them and love them. They may not be prepaid, but you can end up paying a lot more on prepaid plans if you aren't careful.

Also, Solavei runs on T-Mobile's network with free roaming onto AT&T for awesome coverage. T-Mobile has done some serious upgrades to their network in the last year. I have a cheap 3G android phone, but even on 3G I am getting download speeds from 3-4 Mbps and uploads around 768 to 1025 Kbps. I was blown away by the speed. T-Mobile has been sinking 4$ billion dollars into upgrading their network and it shows. 

If anyone is interested, here is a site with more info: ttp://]
For less than $80/yr, I get 480 carryover minutes plus another120-240 using promo codes with tracfone. I have a simple Motorola flipper with bluetooth earpiece, camera and FM radio. Cost was $15. Radio reception poor but free. If you need  more, buy more. I don't, so I haven't.
I have been using T-Mobile for 2 years and I am now with a new TMO contract.

With no data, I was paying ~$30 in a family plan of 3 sharing 750 min. 

Now I am in a value plan of 5 people, with 2 having unlimited voice and text, 3 having 500 anytime minutes & unlimited text. Monthly cost is ~$20 each person. Got it as a big deal. For those interested, it is value plan unlimited + $0 add-a-line fee until 2014 + 15% discount from my college.

I thought about H2O wireless and people complain about its customer service a lot. H2O is pretty cheap, $10 for 200 min or $25 for 500 min in a month. Also thought about AirVoice and it is also cheap like $10 for 250 min. 

I don't have data with TMO but with prepaid I can use data occasionally. I am not big data user since WIFI is everywhere.

Post-paid: has unlimited night and weekend minutes. With 500 min, it is not easy to exceed the cap for me.
Prepaid: you have to pay for every minute you talk. But you can pay less if you talk less.

I talk like a few hundred minutes a month. A large portion could be done via Google Voice. Guess I could choose to save maybe $5 per month by using prepaid (that is ~$15/mon).
I have my mom on a t-mobile prepaid plan.  She doesn't use the phone much, so her cost per YEAR is about $50.   Minutes don't expire for a year.  To get this plan all you need to do is load at least $100 the first time and you get the full year to use your minutes. 

I use a monthly pre-paid plan from PagePlus.   They use the Verizon network, so you get great coverage.  Unlike what this article states, you can use an old verizon phone and you don't need to buy a new one.   I bought a second hand Droid 2.  If you buy used, be careful to get a phone with a clean ESN, otherwise the cellular carrier will not activate it.  I pay $30/month, no additional hidden fees and taxes, for 1200 mins of talk, 1300 texts and 100mb of data.   I never get close to my limits for talk and text.  I'm careful with data usage, so I have not come close yet.  It also helps that 90% of the time I am near a WiFi hotspot. 

I've done the math and I save over $400 a year over the cheapest verizon plan that has data.  I also get to switch phones whenever I want.  I'm easy on phones, so there is no reason for me to switch phones every 2 years. 
Brand new prepaid cell phone company that will change the industry in a drastic way.  Send me an email @ for more info.  You'll be glad you did.
Another alternative for people who don't talk or text much but do use data is the T-Mobile $30/month plan, which gives you 100 minutes, unlimited text, and 5GB of data at up to 4G speed.

For those who don't need the data and just need a phone for emergencies or occasional calls, Tracfone often offers specials on phones with double or triple minutes for life.  On top of that, using a webcode can bring it to quadruple minutes.  Tracfone minutes are relatively expensive, but it can still end up being a good deal for some people.
I switched two phones to Straight Talk using their AT&T compatible Sim cards.  Can't complain about the pricing, and the service has been pretty good--if I am outside or in a small building.  Inside big buildings I have run into reception issues, whereas coworkers on Verizon have consistently had a strong signal in those same places.  It may not be the same situation in your area, but it's definitely something to investigate before you make the switch.  I wish ST would just state the useage limit at which they begin to throttle you--other services like T-Mobile clearly state "the first 2GB" or "first 5GB" at up to 4G speeds, for instance.  ST does not, so power use at your own peril.

A final caveat on pricing: Prepaid carriers do not offer discounts for federal/state/military/university employees as do postpaid carriers.  Consequently, for those people--especially those on a family plan--prepaid may not save them any money at all and may even be more expensive.  For everyone else who has only one to two smartphones, prepaid is usually a better deal.

Then again, for those with kids, prepaid ensures you never receive unexpected overage charges, so whether or not you save a lot of money, it may be worth it if only for the peace of mind.
I bought a HTC Evo 4g from Virgin Mobile. Purchasing was a nightmare. After loosing my original order of 2 phones. They sent me 2 extra phones and would not reimburse me shipping to send them back. To top it off....the phone has a software glitch that causes it to fail to ring or record having recieved a call, which rendors the phone useless as a phone If a voice mail was left...that comes thru. If have no idea you have had a call. This issue is well documented on the web and Virgin Mobile has done nothing to correct. Evidently the issue is with this particuliar phone due to a software conflict with VM propriatary software. Contacting VM support is equally a night mare. Think twice about going this route. Worse then Sprint...which was laden with customer service problems as well. Same phone issued by another carrier  apparently works fine. 
 Hope ST is great... I'm switching over to them next month.  $45 for unlimited minutes/text/data sounds too good to be true (specifically the data).  I have read ST throttles "heavy" data users.
This is the way to go.  I have an unlocked international Samsung Galaxy S3 and get service from one of the MVNO's that run on AT&T's network.   I don't like a carrier locking or installing bloated software on my phone OR being gouged by greedy providers that nickle-and-dime their post-customers for features that should not be charged for (i.e. tethering/hotspot).  I just wish the US had better options for obtaining prepaid service... it's quite primitive compared to what you can get in the UK, for example.  I used to get unlimited minutes/text/2GBdata for $60 all inclusive of taxes but my current provided changed the offering to 1GB now.  The beauty of not being in a contract is that I can switch providers w/o being bound to a contract which I intend to do once my current service for the month expires.
I've had a T-Mobile prepaid phone for at least several years, and like aswavey I've been very pleased with it, including saving a lot of money. With TMobile if you buy a $100 card all subsequent purchases give you a 15% bonus of minutes. For one who doesn't use his phone much, I could not be more pleased.  My wife uses a prepaid TracFone, which is considerably more expensive but still cheaper than a contract.
Also worth noting, with prepaid your taxes are ~6%. With contract, you pay closer to 20% tax. Sometimes you can find $100 prepaid cards for $90 online.
AT&T Prepaid is a pretty solid deal for those who don't text or talk much.  The minimum you can pay is $100/year. Depending on how you do your texting rollover, this amounts to 1,000 minutes a year (no texts), 300 minutes a year and 4,000 texts a year, or 100 minutes a year and 7,200 texts a year. This is with $.10 per minute. This is what I use for my iphone4 (no data plan). To get a data plan you're talking minimum $30/mo, which would then get you unlimited texting, 250 minutes a month, and about 50mb a month. ($50/m gets you the same except with 1gb of data per month)
Lindsay Sakraida (DealNews)
Thanks for your input, we'll take it into account! We do list quite a few unlocked deals on a regular basis, so hopefully you'll find something you like soon. 
 It would be nice if dealnews posted more deals for unlocked, no-contract phones. "Free" or "1 cent" phones are so expensive when you factor in the $100+ monthly service
 Hi aswavey--  Can you provide specific name of plan that costs $90/year?  I'm on a tite budget and a friend gave me his old phone. Do you have to show up in person to get phone unlocked? Thanks. 
Pelican Joe
I have 2 iphone 4 on straight talk.
I've used prepay for years now through T-Mobile. About $90 (through deals online) and I've got 1000 minutes and a year to use it. Texts cost roughly 1/3 minute. I don't talk a lot on the phone and I'm not a tex-heavy user. I calculated last year's usage and I'm paying roughly $12-$15 per month. @ccwu; that's right, i've never had to purchase a new phone. I bought a SIM, dropped it in a GSM phone & I'm good to go. Plus, T-Mobile's quick to help me unlock about any GSM I run across as an upgrade. True, I don't have e-mail and I don't have data, but I'm not in need of those services. As my daughters get older, I'll probably need more minutes and data, etc., and I'll be going pre-paid as well.
the requirement to buy a new phone is not strictly true. For cdma based prepaid plans this is generally true. But providers like Straight Talk allow you to use an AT&T or T-Mobile. Simple will let you use an unlocked phone. Most GSM providers will unlock your phone too once after contract. Also used phones are increasingly an option.