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How do prepaid cards work?

There are a variety of cards with different features, but essentially you load the card upfront with money and don’t need a bank account to get one


You won’t build up your credit history with these cards, and you have to watch out for fees, but they do offer consumer protections.


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Thinking about picking up a reloadable prepaid card? Join the club.

Recent data shows that of the nearly 7 billion credit, debit and prepaid cards in the U.S., about 71% are prepaid cards.

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 are the nine things you need to know about general prepaid cards.  

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.

Because 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, gas up your car and even pay bills online.

And because the fees merchants pay to accept debit cards (including prepaid debit cards) are lower than those for credit cards, there may be places that will accept your prepaid card but not credit cards.

You don’t pay interest on a prepaid card as you do with a credit card. Instead, you will pay fees, and they often will be hidden. 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 – the list goes on and on.

Prepaid cards can charge fees for everything from setup to reloading. The good news is that by comparison shopping, consumers can limit fees, as long as you keep a minimum balance or sign up for direct deposit.

Some cards charge for special benefits such as overseas use or automated bill pay, and most tap you for out-of-network ATM withdrawals. Fee structures vary, so it’s important to read the disclosures.

Even with such fees, a prepaid card can be an effective budgeting tool, including for people with a regular bank account. Load your monthly grocery budget onto a prepaid card and use it strictly at the supermarket; when the money’s gone, your spending stops automatically.

“Many general-purpose reloadable prepaid cards are specifically designed to help consumers manage their spending while limiting costs and risks,” said Richard Cordray, former director of the CFPB, in a 2016 speech.

“While prepaid cards were developed by entrepreneurs as an alternative to banking, the funds in these accounts are almost always held by a bank or credit union and enjoy federal deposit insurance,” Cordray said.

Prepaid debit cards versus regular debit cards

You don’t need a bank account to use a prepaid card unlike traditional debit cards. 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 hassles of dealing with a bank that a traditional debit card involves.

And similar to a regular debit card, a prepaid card will not require a credit check. Also, it will not help you build credit since spending on prepaid cards, as well as regular 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. In 2019 alone, 9% of American households used at least one prepaid card. The popularity of prepaid cards is due in part to their versatility. You can use prepaid cards to book a hotel room or rent a car. And they even come with account and routing numbers, which means you can have your paycheck direct-deposited onto your card.

Prepaid cards were originally designed for people with poor credit or nonexistent credit history, and they remain an excellent option for those with credit issues. It’s impossible to spend beyond your means with a prepaid card – the card expires when the preloaded dollars run out – which makes it a useful first card for teens or those recovering from debt.

TD Bank’s 2019 Checking Experience Index found that the most common reasons people cited for using prepaid cards were to avoid debt and prevent overspending. The study went on to highlight the discrepancies that exist in the groups that use prepaid cards. Unbanked Americans represent 7% of the population, but 23% of prepaid card users.

When choosing a prepaid card, look for a card 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.

If you’re looking to use your prepaid card long term, consider getting a card that doesn’t charge fees to reload. It’s also a good idea to know if purchase protection coverage is offered by the card issuer and if it charges ATM and foreign transaction fees.

How to get a prepaid debit card

The prepaid industry has expanded in recent years, and consumers have many options from which to choose.

These include prepaid cards with benefits aimed at specific lifestyles. Expect to see more incentives such as Walmart’s cash back rewards, which gives cardholders 3% cash back for using their Walmart MoneyCard at Walmart.com, and 1% back for using it in-store.

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 or financial institution.
  • 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 such as MyVanilla or (for Green Dot) MoneyPak.

A reload card works like a gift card: It contains a code number that becomes linked to the amount of money you paid the cashier. Using reload cards with a PIN was a popular and convenient way to load a prepaid card online or over the phone – until PINs became a target for scammers.

Best prepaid cards of 2021

Blue Netspend Visa Prepaid Card

This prepaid card is a good choice for consumers who don’t have a traditional bank account. It allows card owners to get paychecks up to two days early and doesn’t charge fees for uploading checks.

Bluebird by American Express

Bluebird by American Express offers impressive benefits for a prepaid card and is a good option for anyone looking to build their credit or simply stick to a budget. Notable card features include access to a network of 30,000 ATMs and low balance alerts from your Bluebird account.

Greenlight Prepaid Mastercard

Adults aren’t the only ones who can benefit from a prepaid card. With Greenlight, consumers can create subaccounts for their children and set specific spending and store limits to teach them how to manage money.

Walmart MoneyCard

The Walmart MoneyCard is a good choice for customers who frequently shop at Walmart stores. Despite being a prepaid card, it offers rewards of up to 3% cash back for online purchases. Card owners can earn up to $75 a year in cash back just for shopping with their card.

Bottom line

A prepaid card allows you to load your own money onto it 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. In addition, these cards come with certain consumer protections, even though you have to be careful to watch out for the fees the cards charge.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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