Strict about your budget? Prepaid and debit cards can help you control your spending by setting your balance up front. Note that prepaid and debit cards are not the same as credit cards. If you're looking for a credit card but are concerned about a low credit score, check out these card offers from our partners.
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Updated: May 1, 2018
A prepaid card is a great tool for someone who needs a little help budgeting, doesn't have the best of credit or prefers the convenience of not always pulling out cash. But they aren't the same as credit cards and they don't enjoy credit cards' greatest advantage – the ability to help build your credit. That said, there are plenty of good reasons to get a prepaid card. Here we look at:
We look at who can benefit from a prepaid card, how they work and what they aren’t.
Prepaid cards are among the fastest growing financial products on the market, growing from $1 billion in 2003 for general-purpose, reloadable prepaid cards to an expected $116 billion by 2020.
Yet, as popular as they are, there is a ton of misunderstanding about them.
For example, there is no such thing as a prepaid credit card. In fact, they are opposites.
Here are the 4 main kinds of cards you think of when you think about financial cards:
The most common type of prepaid card is also an open-loop card, meaning that it is affiliated with one of the networks – American Express, Visa, Mastercard or Discover. This affiliation allows you to use the prepaid card at any of the retailers that accept the logo on the front of the card.
One of the conveniences of prepaid cards is that they are available almost anywhere, from grocery stores to gas stations. Here are the more popular places to buy them:
Phoenix Synergistics survey
Prepaid cards are not credit cards, but they still have protections. Prepaid cards in a payment network such as Mastercard or Visa might enjoy zero liability protections, as in the case of the Gloss Prepaid Visa RushCard.
The Consumer Financial Protection Bureau is rolling out a new rule in April 2019 that makes the fees and other details of your card more clear with formatting that's similar to credit cards' Schumer Box.
The new rule will also allow you to access your account on line, like a bank account or credit card. You'll also have greater protection from loss, theft or incorrect charges, according to CFPB.
No. A prepaid card is a standalone financial product that you load with money, then it eventually runs out of money unless you reload more. A bank account's card is called a debit card – it operates in a similar way, but it is tied to the account's funds. Neither is a credit card, which basically provides short-term loans to the cardholder.
A prepaid card can have similar features to a bank account, however. For example, you can use it to deposit your paycheck or auto-debit bills. This is because routing and account numbers can be assigned to the card.
Neither a prepaid card nor a debit card can be used to build credit, while you can build credit with a credit card. If your credit isn't its best, try taking out a secured credit card for credit-building. Just make sure the card issuer will notify the 3 major credit bureaus of your credit habits.
Prepaid cards are increasingly popular, with an estimated $65 billion loaded onto prepaid cards in 2012, double the amount reported three years before. They are made up by both the 10 million households who do not have a traditional checking account and those who do, according to a Pew Trusts study.
But who should use a prepaid card? You might embrace them because you can't land a checking account. Or perhaps you appreciate the convenience. One thing we know – consumers typically choose prepaid cards to control spending, control fees or make purchases. Here are the specifics on how that landscape looks:
Pew Trusts survey
Figuring out whether your card is prepaid or credit can be confusing because both can have network symbols on the front of the card, such as American Express, Visa or Mastercard. But they are very different.
A credit card is a lending product. With a credit card, you charge a purchase, then you can pay it back in full by the due date and avoid paying interest charges. Alternatively, you can carry the balance to the next month and pay interest. The going APR for credit cards vary depending on the type of card, but the average is 16.65%.
A prepaid card uses your money to pay for purchases. You load the card with the amount you want, then use the card as you would use a credit card, presenting the card at the register. The difference is you don't pay interest fees because you are using your own money – you aren't borrowing. However, prepaid cards can have fees for signature purchase transaction fees, PIN purchase transaction fees and foreign transaction surcharges. That said, prepaid cards can have features such as the ability to get text messages or email alerts with the Blue Netspend Visa Prepaid Card. The ACE products also allow no-fee withdrawals of up to $300 a day at ACE locations with qualifying direct deposit.
Advantages to credit cards are that you can use them to build credit, and you can use them to borrow money. Prepaid cards are helpful when you have had difficulty with credit or you don't want a checking or savings account, which are typically linked to debit cards.
While prepaid cards are great for keeping track of your money and avoiding bank accounts or interest charges, they don't help with building credit and they can have sizeable fees. Here are the pluses and minuses of prepaid cards:
|Brink's Prepaid Mastercard||Direct deposit – get tax refund deposit onto card||Variable monthly fees|
|Netspend Prepaid Mastercard||Direct deposit – faster than a paper check||Up to $9.95 monthly|
|Gloss Prepaid Visa RushCard||Direct deposit – get government benefits up to 2 days earlier (Certain restrictions apply. See card site for details)||Variable monthly fees|
|ACE Elite Blue Visa Prepaid Debit Card||Direct deposit – get paid up to 2 days earlier||Variable monthly fees|
With all the advantages of prepaid cards, there are a few things to watch out for, including how it works and its features. For example, they actually have some protections and they can be used widely, yet they don't work like a credit card. Here are 7 things to pay attention to:
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