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Thinking about picking up a reloadable prepaid card? There are more than a dozen types on the market now, and plenty of variations that can make them a wonderful or terrible financial choice. Here’s what you need to know about general prepaid cards: how they work, when to use them and how to get one.
What is a prepaid debit card?
Prepaid cards look like credit cards and spend like credit cards, but there’s no credit behind them. They are technically debit cards – when you use them, you’re spending your own money, not the bank’s. This means you won’t pay interest on a prepaid card as you might with a credit card.
Since prepaid cards are associated with major card networks — Visa, Mastercard, American Express and Discover — they can be used anywhere debit cards can: to buy groceries, fill up on gas and even pay bills online.
One downside of prepaid cards is hidden fees. Unlike credit cards, which by law must disclose their terms and conditions upfront, no regulation forces prepurchase disclosure of fees on prepaid cards.
According to the Consumer Financial Protection Bureau, some of the common fees associated with prepaid cards include monthly fees, transaction fees, inactivity fees and even fees for paying bills. Fee structures vary, so it’s important to read the disclosures.
Debit cards vs. prepaid cards
Unlike traditional debit cards, you don’t need a bank account to use a prepaid card. You just load dollars directly onto the card and then use that balance for purchases. When the balance on the card dips too low, you reload more money.
For more than 7 million households that don’t have a checking account, prepaid cards can offer the ease of card-based purchases without the requirement of a bank account.
Similar to a regular debit card, a prepaid card will not require a credit check. On the flip side, it also won’t help you build credit since spending on prepaid cards and debit cards is not tracked by credit bureaus
And like regular debit cards, prepaid debit cards offer certain protections. Even those not issued by a bank offer the zero liability protections of the payment network noted on the card, such as Mastercard or Visa. If you report the loss or theft of a registered card to the issuer in a timely manner, most will restore your original balance and issue a new card.
In other words, a prepaid card works like a debit card, minus many of the risks and, of course, the bank account.
When do prepaid cards make sense?
The popularity of prepaid cards is undeniable and due in part to their versatility. Here are some common reasons you might prefer a prepaid card over other options:
- You have poor credit or no credit: While there are credit cards for those with poor credit, if you’d rather not go that route, prepaid cards can offer the convenience of a card for short-term spending.
- You want to avoid overspending: It’s impossible to spend beyond your means with a prepaid card – it expires when the preloaded dollars run out – which makes it a useful first card for teens or those recovering from debt.
- You don’t have a bank account: Since prepaid cards are preloaded, you don’t need to link up a checking or savings account to use one.
- You don’t want to use cash: If you don’t want to carry around a wad of cash while traveling, or just generally don’t feel safe operating on cash alone, a prepaid card is a good alternative.
- You want to share travel expenses without a credit card: If you’re traveling with someone and you both want to put cash toward shared expenses, jointly loading cash on a prepaid card might be a solution. This way, you can use prepaid cards to book a hotel room or rent a car without relying on one person’s credit card or either of you having to reimburse the other.
How to get a prepaid debit card
When choosing a prepaid card, look for one that fits your specific needs. For instance, some prepaid cards let you pay bills online and even handle automatic monthly payments. Some will make payments via electronic check issued by the card company or let you withdraw cash from an ATM using a special PIN.
Managing your prepaid card is easier than ever with online account access. Many cards such as Green Dot, the Walmart MoneyCard, and Amex’s Bluebird and Serve and offer apps to manage your accounts straight from your phone. Need to put more cash on your card? You have five options:
- Transfer money from a bank account.
- Have your employer direct-deposit your paycheck onto your card.
- Transfer money from a PayPal account.
- Reload it at a retail store, such as Walmart or Walgreens.
- Use a reload card, which works like a gift card.
Bottom line
A prepaid card allows you to load your own money and use it for transactions. Considering that no credit is extended, such cards will not help you build your credit history.
These cards are particularly useful for people without bank accounts or those facing credit issues, but they offer many features and anyone can use them. While prepaid cards come with certain consumer protections, watch out for hidden fees.
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FAQs
Prepaid cards look like credit cards and spend like credit cards, but there's no credit behind them. They are technically debit cards – when you use them, you're spending your own money, not the bank's. This means you won't pay interest on a prepaid card as you might with a credit card.
How does a prepaid credit card works? ›
A prepaid card is not linked to a bank or credit union account. Instead, you put money into the card account, sometimes called loading money onto the card, before you can spend it. With a debit card, you are spending money you have in your bank or credit union account.
Can you use a prepaid card like a credit card? ›
Prepaid cards generally allow you to make purchases in the same way as credit and debit cards. The key difference is that prepaid cards aren't linked to a bank account or a line of credit. So to use one, money has to be loaded onto the card. Keep in mind that there may be fees to activate or use prepaid cards.
What's the downside of using a prepaid card? ›
Disadvantages. Pre-paid debit cards do not help you build credit. Many pre-paid debit cards charge fees before you even start using them. There is usually a monthly fee and fees on common transactions such as ATM withdrawals, card replacement, direct deposit, and reloading the card.
How do I put money on a prepaid card? ›
Bring your cash and debit or prepaid card to any participating retailer. Hand the cashier your cash and they'll swipe your card. A reload fee may apply. The cashier will give you a receipt as proof of the reload.
Can you withdraw money from prepaid credit card? ›
A: Yes. You may withdraw cash against the balance on most Mastercard prepaid and gift cards at any ATM. However, not all prepaid and gift card issuers allow ATM or foreign transactions. Be sure to check with your card issuer to ensure that these types of transactions are permitted.
Do you have to activate prepaid credit cards? ›
If you receive a Visa gift card or a Mastercard gift card, you'll have to activate it before the card works.
Do you need a PIN for a prepaid Visa card? ›
How does my Visa Gift Card work? To make a purchase, make sure you know the amount remaining on the card then select credit and sign for the purchase. The debit option requires a PIN to work. The card does not come with a preset PIN, so you will need to set one prior to making the purchase for the debit option to work.
How to use a prepaid Visa as a credit card? ›
It's easy—Visa gift cards are as simple and easy to use as a regular Visa debit card or credit card. Just choose your card at the store, load it with the desired amount of money, then shop, shop, shop! No paperwork, no fees and no waiting in line at the bank.
How much money can you put on a prepaid Visa card? ›
How much can you put on a prepaid debit card? Some prepaid debit cards let you load up to $15,000 onto your card, while others may have a lower maximum amount. For example, the Regions Now Card has a $7,500 balance limit.
In contrast, prepaid cards don't impact your credit. Since you can only spend money you've got on the card and you aren't borrowing any money, there isn't any payment history to report to the credit bureaus and there won't be any impact to your score.
What is the best prepaid card to use? ›
Best Prepaid Debit Cards of 2024
- Best Overall, Best for No Monthly Fee: Bluebird by American Express.
- Best for Cash Reloads: American Express Serve FREE Reloads.
- Best for Walmart Shoppers: Walmart MoneyCard.
- Best for Rewards: American Express Serve Cash Back.
- Best for Tweens/Teens: FamZoo Prepaid Debit Card.
Fraudsters and money launderers may use these cards to anonymously transfer funds, make purchases, or withdraw cash. It is important for consumers and businesses to be aware of these risks and take appropriate precautions to protect themselves.
Are prepaid cards traceable? ›
Yes, prepaid debit cards are traceable. However, the level of traceability depends on the issuer and the information provided during the card registration process.
Can I transfer money from prepaid card to bank account? ›
You can typically do this by visiting the prepaid card issuer's website or mobile app. Select the "Transfer" option. This option will usually be located in the "Account Management" or "Transactions" section of your account. Choose the "Transfer to Bank Account" option.
What is the best way to transfer money from a prepaid card? ›
Generally, available methods may include direct deposit, bank transfers, cash reloads at designated locations, or via online platforms or mobile apps. Review card terms or check with the card provider for specific options.
Why would someone use a prepaid credit card? ›
Any money you spend with a prepaid card is deducted from your card balance, not your bank account. You can spend only the amount you load or “prepay” onto the card. You don't need a bank account to use prepaid cards, which is why they appeal to people who are unable to access traditional banking.
Does it cost to use a prepaid credit card? ›
Before you open a prepaid card, it's important to understand what fees may be associated with them. Most prepaid cards charge monthly maintenance fees around $10, which is similar to checking account fees that can cost up to $15 a month. But you may also pay a fee to open your prepaid card, typically around $5.
Why do people use prepaid credit cards? ›
A prepaid card can be used practically everywhere. You load and reload money onto it, as needed, and spend however you see fit. Like a credit card, they're widely accepted – but unlike a credit card, you don't accrue any interest on purchases and there are far fewer associated fees.
