What Is a Prepaid Card and How Does It Work?

This control over your finances helps you manage your spending and offers you peace of mind. Debit cards can be a good choice for anyone with a checking account since they provide easy access to your money and don’t need to be reloaded. If you want fee-free access to your money, consider using a no-fee checking account, such as the Capital One 360 Checking® Account, which has no monthly how to efficiently manage capex capital project management software fees whatsoever. You can even add your kid as an authorized user on your credit account, allowing them to piggyback off of your credit history. If you pay on time and in full every billing cycle, you can both establish a good credit score. The age requirement for adding authorized users varies by card issuer, but many like Citi and Chase have no minimum age requirement, while others like American Express start at 13.

Some issuers will allow you to request a replacement card in advance of the expiration date. You may also be able to have the balance mailed to you in the form of a paper check, but there’s typically a fee for this. As a last resort, you can spend the remaining money on the card for something you really need so you don’t lose the money. When you check out at the supermarket, you’ll often see an array of gift cards for purchase, and there may also be prepaid cards for sale. Like a gift card, you add value to the prepaid card before you can use it.

Prepaid Debit Card vs. Regular Debit Card

1. You can read more about our editorial guidelines and the banking methodology for the ratings below.
2. A virtual prepaid debit card is a prepaid debit card in a digital format.
3. Prepaid cards don’t offer you the same protections as credit cards, but they can still help you with your credit goals by inspiring financial habits such as only spending what you currently have.
4. For rates and fees of the Discover it® Secured Credit Card, click here.

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. The primary difference between a regular debit card and a prepaid debit card is that the former is linked to a bank account while the latter isn’t. You have to load money onto a prepaid debit card—or “prepay”—before you make a purchase. When you use the card, you’re spending that money—much like how a gift card works. Similar to credit and debit cards, prepaid cards charge a variety of fees.

If you’re in one of the roughly 6 million U.S. households without access to a bank account, prepaid cards can be a solution to safely spending money without having to use a bank. If you aren’t a frequent user of prepaid debit cards, you may want to consider options that don’t have monthly fees and instead charge you per transaction. On the other hand, if you frequently purchase items using your prepaid debit card, look into options that offer cash-back rewards or points for every purchase you make.

Electronic money: everything you need to know

You can’t spend more than what you’ve loaded onto a prepaid debit card. Some debit cards will let you overdraft your account, but you could incur hefty overdraft fees. However, prepaid cards are more likely to have monthly fees and purchase fees. Some prepaid debit cards charge fees for monthly maintenance (typically up to $10 a month), foreign transactions and cash reloads, while others don’t. Be sure to shop around and compare fees to find the best prepaid debit card for your budget. Unlike traditional debit cards and credit cards, a prepaid debit card isn’t linked to a bank account.

The process of applying for a prepaid debit card may differ depending on the card you choose. The NetSpend Prepaid Card has a $9.95 monthly fee that’s reduced to $5 if you receive at least $500 in direct deposits on a regular basis. Otherwise, take your time to do some homework before you select a card for yourself or as a gift for someone else. Check out the issuer’s track record and inquire about expiration dates, add-ons, and other issues. Compare this information to other prepaid card issuers so you’re sure you’re getting the best deal.

This allows you to build a positive credit history once you start making regular purchases and paying them off on time. These cards tend to be better for your credit than prepaid cards, but there are some drawbacks to keep in mind. Like most credit cards, be aware of any fees you may face with a secured credit card, such as annual fees or processing fees. If a prepaid debit card isn’t quite right for you, you can find a good alternative with a no-fee checking account. If you need to build credit or have been denied a bank account, a prepaid debit card might not be the best option. Secured credit cards help build credit, and if you can’t get a regular checking account, try second chance checking.

When you should get a prepaid card

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You can generally buy prepaid cards at banks or retail locations like grocery stores and drugstores. The cards come with either a set available balance or an option to load money onto the card. Once the money runs out, you won’t be able to make more purchases until you reload the card. 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.

Prepaid debit cards will not affect your credit score since you’re not borrowing money and can only spend the amount loaded onto the card. However, while prepaid debit cards won’t negatively impact your credit score, they won’t help it either. So if you’re looking to build credit, consider exploring other options such as secured credit cards or second chance credit cards. And unlike credit cards, prepaid credit cards do not come with a line of credit. You aren’t borrowing money or paying a deposit that acts as collateral. One of the biggest advantages of a secured credit card, especially as a beginner card, is that the card issuer reports your credit information to the three credit bureaus.

You can’t build credit with them and the money you load onto them won’t earn interest. And many prepaid cards lack standard banking services, such as a way to withdraw or reload cash for free. Many prepaid debit cards don’t require credit checks, so they’re got tips better report them easy to get.

How do prepaid cards and debit cards compare to credit cards?

Whether used as a budgeting tool or as an alternative way to bank, prepaid debit cards can help you store and spend money. A prepaid card offers the convenience of having your money available to spend without the potential issues of using cash — the risk of total loss if it’s stolen or misplaced. Once you add money to the card, you can use it anywhere a typical debit card is accepted. Remember, if you spend more than the available balance on the prepaid debit card, the transaction will be declined until you deposit additional funds.

That said, you may want to use a prepaid card over a debit or credit card if you have a history of overspending. Giving yourself a tangible limit (the money you load onto the card) is a good way to help you stick to your budget. The obvious disadvantage of using a prepaid card is that you can only complete transactions up to the amount you have loaded onto it.

While prepaid debit cards come with many perks, they’re not the most suitable option for everyone. Anyone who wants to stick to a strict budget or who has had trouble managing credit cards could consider using a prepaid debit card. Many prepaid cards have a hefty foreign transaction fee which applies every time you spend or withdraw in a foreign currency, plus extra charges for using an ATM abroad. You can only spend the money you load on the card — which means no interest charges and bill to pay at the end of the month. Bankrate.com is an independent, advertising-supported publisher and comparison service.