Prepaid debit cards can be a nice alternative to carrying cash. They come with many of the conveniences of other cards, namely that they’re quick to use and take up little space in a wallet or purse. They’re also a surefire way to avoid overdraft fees, which could be a big incentive if you’re not always great about noticing when your account has dropped closer to zero.
But what is a prepaid debit card, and how does it work? You’ve come to the right place to find out. We’ll break down everything from how to get a prepaid card to the pros and cons you should consider before deciding whether or not they’re the right choice for you.
What Are Prepaid Cards?
While regular debit cards allow you to make purchases from your checking account, prepaid debit cards do not require a bank account to open or use. They’re more like a gift card because you can only spend the amount of money that you’ve pre-loaded onto your card.
Most prepaid cards are issued by a major credit card provider such as Visa, Mastercard, Discover or American Express. As a result, there are few limits to where prepaid cards can be spent. It’s also very easy to get a prepaid debit card since they don’t require a credit check or even a bank account.
How Do Prepaid Cards Work?
As far as specific features go, prepaid cards can vary widely. That’s why it’s so important to make sure to do your research to determine which prepaid card is best for you.
Here are some of the things you’ll want to check for:
- Fees: One of the downsides of prepaid debit cards is that many of them tend to charge fees. These can range from activation or monthly fees to reload or ATM fees. Some of the best prepaid debit cards will waive some of these fees if you sign up for direct deposit or deposit a certain amount of money each month.
- Reload Options: When it comes to how to put money on a prepaid card, different cards come with different reload options. Many prepaid cards offer a direct deposit option or the ability to load your card at certain ATMs or stores. Others offer mobile check deposits or the ability to transfer funds from a connected account.
- ATM and Withdrawal Options: Many prepaid cards allow free access to a collection of ATMs from certain banks or stores. You’ll want to make sure that there are plenty of ATMs in the network near you. Otherwise, you may be subject to ATM fees. Additionally, you’ll want to see if there are any limitations on how much money you can withdraw within a certain period of time.
- Prepaid Card Features: Different prepaid cards offer different features that can definitely come in handy. Some offer the ability to write checks, pay bills online or manage your money on an associated app. A few even offer the chance to earn cash back or rewards on certain purchases.
Where Can You Get a Prepaid Card?
One of the perks of prepaid debit cards is that they’re incredibly easy to find. If you’d like a prepaid card from a specific provider, then you can get one directly from issuers such as Visa or Mastercard.
You can even find prepaid debit cards at retail stores such as Walgreens or Walmart.
Additionally, you can get prepaid Venmo or Paypal debit cards that allow you to spend money directly from your account. This can be a nice option if you use either service often, as you don’t have to worry about transferring the money you receive to your regular bank account.
Some companies also issue prepaid debit cards to their employees and use them for payroll purposes. It’s important to note that in many states, employees do have the right to opt for direct deposit if they’d prefer.
Even government benefits are now commonly issued on prepaid debit cards. Government prepaid cards do not tend to be subject to fees of any kind, so they’re often a much more convenient option than checks.
Limitations of Prepaid Cards
For users who don’t have access to a bank account or who prefer to have a separate debit card for certain expenses, prepaid debit cards may be a nice option. It’s important to note, however, that there are certain things that a prepaid debit card cannot do.
If you’re looking for a way to improve or build your credit, for instance, then prepaid cards may not be your best option. Because you aren’t actually borrowing money or taking out a line of credit, your prepaid card activity is not reported to any of the major credit bureaus.
If building credit is one of your goals, then you may be better off opting for a secured credit card instead. Secured credit cards may charge an annual fee and require you to put down an opening security deposit.
You’ll often then receive a credit line, often in the same amount of the security deposit you chose to pay upfront. Paying the bills on your secured credit card on time each month can go a long way towards building your credit, as most secured cards report to the major credit bureaus on a monthly basis.
Additionally, one of the biggest drawbacks of prepaid debit cards lies in the fact that many come with hidden fees. These vary widely from card to card but can include fees for everything from using your card too often or too little to overdraft fees, purchase fees, bill pay fees or ATM fees.
Last but not least, prepaid debit cards don’t tend to offer the chance to earn interest of any sort on your balance.
Benefits of Prepaid Cards
Prepaid Debit Cards Help You Stick to a Budget
One of the biggest advantages of a prepaid debit card is that they help you stick to a budget. There’s no worry that you’ll overspend and lose rent money or spend too much credit. If you’re only looking to spend $100 in a month, you can load your card with that amount, and you’re done spending when it’s out. With a credit card and even a traditional debit card, it’s tempting to overspend or lose track of your budget.
Before you load your prepaid debit card, it’s helpful to create a budget. This means writing out all your expenses and income. This leaves you with a set budget for what you can spend on shopping or entertainment, for example. If you’re trying to stick to a budget, a prepaid debit card can be loaded with your set amount to help you stick to your budget.
Prepaid Debit Cards Help Keep You Out of Debt
A prepaid debit card can also help keep you out of debt. Using too many credit cards and overspending can lead to an unhealthy debt balance. With a prepaid debit card, you can only spend what you’ve loaded on ahead of time. If you’re looking to reduce your debt and boost your credit score, a prepaid debit card may be the answer.
After you’ve gone through your monthly expenses, it’s time to set a budget and make a plan for paying down your debt. Start by carving out an amount to pay towards your debt each month. With what’s left, you can use your prepaid debit card for traveling, eating out, or entertainment. Leave them at home to help yourself stay on budget and avoid using your credit cards. Only taking your prepaid debit card helps you stay on track and not lean on your credit cards.
Prepaid Debit Cards Help Teach Kids About Money
A prepaid debit card is a great way to teach older children about money. Before giving them full access to a credit card or debit card, a prepaid debit card can help them learn credit basics and how to budget. You can load a prepaid debit card with your own money earned from a job or a set allowance from you. These are great for tweens and teens learning about using cards, how to check balances online, and how to stick to a budget.
If your kids are traveling abroad or away for school, this is also an excellent tool for keeping cash safe. Instead of traveling with cash, you can load small amounts onto a prepaid debit card before their trip. They can then use the card at an ATM or a restaurant without exchanging money and carrying around a lot of cash. You can always load more money onto the card as the trip goes. This will help ensure they always have access to cash when they need it. It will also help to keep them from using your credit cards.
