Prepaid debit cards have gained widespread popularity, with an estimated 23 million adults using them regularly for various purchases and financial transactions. These cards, issued by banks and branded by major credit card companies, allow users to spend a predetermined amount of money and can be reloaded once the balance is depleted.
How Do Prepaid Debit Cards Work?
Prepaid debit cards are similar to gift cards because they both allow you to spend a predetermined amount of money. However, prepaid debit cards have additional features that make them more similar to traditional debit cards.
For example, prepaid debit cards are issued by banks and affiliated with major credit card networks, like Visa or Mastercard. This means that they are accepted by a wider range of merchants than gift cards, which may only be accepted at a specific retailer or chain of stores.
Additionally, prepaid debit cards can be reloaded repeatedly, either online or at physical locations, whereas gift cards typically cannot be reloaded once the balance has been used.
Understanding Prepaid Debit Cards
Prepaid debit cards are a convenient and secure way to make purchases and manage money. They are a good alternative to carrying cash, which does not offer consumer protections, and can be used for online purchases. Prepaid debit cards can also be given as gifts, making them a more attractive option than cash.
Prepaid debit cards can be a convenient and budget-friendly option for individuals looking for an alternative to traditional credit or debit cards. These cards can be used similarly to credit and debit cards, allowing users to make purchases online or in person wherever the card is accepted.
Additionally, prepaid debit cards are useful for employers to pay employees and for government benefits, such as Social Security, to be distributed. They can also be a helpful tool for individuals who want to stick to a strict budget or have needed help managing credit cards in the past.
Prepaid Debit Cards vs. Regular Debit Cards
Prepaid debit cards and regular debit cards are similar in that they both allow you to make purchases using money that is available in an account linked to the card. However, there are some key differences between the two:
| Topic | Prepaid Debit Card | Regular Debit Card |
| Account Link | Not linked to a bank account, funded in advance | Tied to a bank account, it allows access to funds in that account |
| Credit History | Does not require a credit check, does not impact a credit score | Linked to a credit account, it could affect credit score if bills not paid on time |
| Fees | May have more fees, including monthly, transaction, reload, and ATM fees | Fewer fees, may waive certain fees if requirements are met |
| Rewards | Offer rewards programs, allowing users to earn cashback or other perks | Does not offer rewards programs, although some credit cards linked to bank accounts may offer them |
| Overdraft Protection | Offer overdraft protection, allowing purchases even if not enough money on card | Usually doesnt offer overdraft protection, but may come with fees and may not be available on all accounts |
Types of Prepaid Cards
There are several different types of prepaid cards available, including
- General purpose reloadable (GPR) prepaid cards – Visa or Mastercard, American Express Serve, Green Dot prepaid card.
- Payroll prepaid cards – ADP TotalPay card, Paychex prepaid card.
- Government benefits prepaid cards – EBT (Electronic Benefit Transfer) card, Direct Express card.
- Travel prepaid cards – Travelex Cash Passport card, Thomas Cook Borderless Prepaid card
- Student prepaid cards – Higher One OneAccount card, PNC SmartAccess card
- Gift cards – Starbucks and Amazon gift cards.
The Downsides of Prepaid Debit Cards
Prepaid debit cards may have several fees, including monthly, transaction, reload, and ATM fees, which can add up quickly if you use the card frequently.
These cards also often lack some of the features and benefits that regular debit and credit cards offer, such as rewards programs, overdraft protection, and fraud protection.
Prepaid debit cards do not help you build credit, as they do not report to the credit bureaus, and some merchants may not accept them, especially for online purchases.
Prepaid debit cards may also have lower security measures and limited options for reloading funds onto the card, which can be inconvenient. It is important to consider these downsides before deciding if a prepaid debit card is right for you.
Shopping for a Prepaid Debit Card
When shopping for a prepaid debit card, review its fees carefully. Additionally, consider how easy it will be to use the card daily.
For example, if you plan to use the card at ATMs, look for a card with a large network of ATMs that are easily accessible. Some cards may also waive ATM fees, making them a more convenient option.
Where to buy prepaid debit cards?
Prepaid debit cards are available at a variety of locations, including
- Banks and credit unions
- Retail stores, such as supermarkets and pharmacies
- Online, through the issuer’s website or a financial comparison website
- Through the mail or over the phone
- Some employers offer prepaid debit cards as a form of payroll payment
- Some government benefits, such as Social Security, are available through prepaid debit cards
An Alternative to a Prepaid Debit Card
Here are several alternatives to a prepaid debit card: a traditional bank account, a credit card, cash, mobile payment apps, digital wallets, money orders, and personal checks.
A traditional bank account at a bank or credit union is a good option if you have a good credit history and can qualify for an account, allowing you to access your money through ATMs, check writing, and debit card transactions.
Credit cards offer the convenience of plastic payment, but it is important to use them responsibly and pay your balance in full each month to avoid accruing interest charges.
Cash is a good option if you want to avoid being bothered with opening an account or managing a card, but it is not conducive to online transactions and offers no protection if lost or stolen. Mobile payment apps like Venmo and PayPal allow you to link a bank account or debit card and make payments directly from your phone.
Digital wallets, such as Google Pay and Apple Pay, allow you to make payments using your phone or another mobile device by linking a credit or debit card or bank account. Money orders can be purchased at a bank, post office, or other financial institution and used to pay bills or make purchases like cash, but they may have associated fees.
Personal checks can be used to pay bills or make purchases but may only be accepted by some merchants and require a checking account.
A secured credit card is a good option if you want to build your credit history, as your monthly payments will be reported to the three major credit bureaus. On the other hand, prepaid or regular debit cards do not report transactions to the credit bureaus and will not help improve your credit.