A guide to prepaid cards
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.
Editor’s picks: Prepaid credit card details
Netspend® Visa® Prepaid Card: Best Visa card for everyday use
Why we picked it: Being a Visa card, this option gives a convenient way to pay at merchants all over the globe. You won’t run into trouble when it comes to having a viable payment option.
Pros: There’s no minimum balance required, no activation fee and no credit check when you open a Netspend Visa card account. You can also use the Netspend Mobile App to manage your account and thanks to the nature of this type of card, there’s no interest charges or late fees.
Cons: There’s no chance at growing your credit or earning rewards with this type of card, limiting its long-term impact. It also has a variable monthly fee.
Who should apply? If you’re looking for a convenient way to spend prior to signing up for a credit card, this is a solid, widely accepted choice.
Read more on the Netspend Visa Prepaid Card.
Brink’s Prepaid Mastercard®: Best prepaid option from Mastercard
Why we picked it: This card can be used anywhere that takes Mastercard – one of the dominant worldwide payment networks – making it a trustworthy choice that can be used almost anywhere.
Pros: You won’t face late fees or interest charges with this kind of card, plus you’ll have access to the Brink’s Money Prepaid Mobile App to manage your account. Also, Brink’s has been securing cash and valuables since 1859, making it a card you can count on.
Cons: This card has no rewards and can’t grow your credit score, limiting its utility. It also requires a variable monthly fee.
Who should apply? The Brink’s Prepaid Mastercard is a good choice for those who want an easy way to pay prior to opening a credit card or secured card account.
Read more on the Brink’s Prepaid Mastercard.
Western Union® Netspend® Mastercard: Best for Western Union members
Why we picked it: After opening a card account, you can send and receive a Western Union® Money Transfer, or use their website to shop or pay bills.
Pros: Moving your money is easy with direct deposit and much like the other options, this card doesn’t feature late fees or interest charges.
Cons: This card has a monthly fee of up to $9.95. Also, like all prepaid cards, you won’t earn rewards or improve your credit score.
Who should apply? Western Union members will appreciate the new capabilities created by this card. It’s a convenient, simple way to spend for a monthly fee.
Read more on the Western Union Netspend Mastercard.
Netspend® Prepaid Mastercard®: Best Mastercard for everyday use
Why we picked it: Payments can be received quickly via direct deposit, sometimes processed up to two days faster than many banks. Cardholders can earn Payback Rewards on eligible purchases which are then applied to your account.
Pros: Deposits and other account services can be managed using the Netspend® Mobile App on your phone.
Cons: There is up to a $9.95 monthly fee in addition to $2.95 for ATM withdrawals, up to $3.95 for cash reloads, the greater of 2% or $5 a month in payroll fees and a potential $5.95 monthly fee if your account is inactive.
Who should apply? In lieu of a bank account, this can be a convenient option for making and receiving payments as well as withdrawing cash.
Read more on the Netspend® Prepaid Mastercard®.
Control™ Prepaid Mastercard®: Best for select rewards
Why we picked it: This Mastercard option gives cash back rewards on select qualifying purchases. There’s also no credit check and no cost to order the card.
Pros: You can manage your money through the Control Prepaid Mastercard’s mobile app and won’t be subject to overdraft fees on card purchases.
Cons: You can’t grow your credit with this card and it requires a variable fee each month.
Who should apply? This is a good choice for those who want to avoid extra fees and even earn some cash back as they spend. However, there are cash back cards for poor credit that would do you better in the long run.
Read more on the Control Prepaid Mastercard.
Self – Credit Builder Account: Best for building credit
Why we picked it: You don’t need a credit history for this account, which gives you the unique opportunity to grow your credit score by reporting spending habits to all three credit bureaus.
Pros: You can graduate from this account to the Self – Credit Builder Account + Secured Visa® Credit Card, allowing you to work on your credit prior to getting used to carrying a card. Self will help you get a small loan to be saved in a CD, which will unlock once you’ve built a credit history and the account term ends. There’s also a one-time $9 to $15 account fee, which is low when compared to the cards here.
Cons: This card has no rewards and a regular APR of 12.03% to 15.98% (variable), so be sure to pay off any balance.
Who should apply? Credit newcomers looking to build a history without immediately opening a card account should consider this option. It may be unconventional, but it’s a great way to get started on the journey to a good credit score.
Read more on the Self – Credit Builder Account +.
PayPal Prepaid Mastercard®: Best for PayPal users
Why we picked it: You can earn rewards through PayPal Payback Rewards, which allows for earning on qualifying purchases from select merchants. And for easy money management, you can move cash directly from your PayPal account.
Pros: You can manage your money easily with this card’s mobile app and direct deposit capabilities. Also, you can add cash at more than 130,000 reload locations in the U.S.
Cons: This card comes with a variable monthly fee and no credit-building features.
Who should apply? PayPal regulars might appreciate the benefits offered by this card thanks to its available rewards and convenience.
Read more on the PayPal Prepaid Mastercard.
Netspend® All-Access® Account by MetaBank®: Best for interest savings
Why we picked it: This option from Visa allows for up to 6% Annual Percentage Yield on your account, so you can watch your balance grow. There’s also no credit check, activation fee or minimum balance required.
Pros: You get access to online banking and the account’s mobile app after opening, so tracking your transactions should be easy. You can also earn cash back on qualifying purchases through Payback Rewards.
Cons: The Netspend All-Access Account by MetaBank requires a $5 standard monthly service fee and doesn’t have any credit-building features.
Who should apply? Those who plan on depositing a large balance can benefit from the APY of this card. However, if you have no credit history and this looks like an enticing option, you may be better off using a credit card to establish a score.
Read more on the Netspend All-Access Account by MetaBank.
Greenlight Debit Card: Best for parents
Why we picked it: This option is designed to help teens get familiar with card habits, so it has some unique perks. Parents can set automated allowances that can be paid out whenever they’d like, plus you can add things like recurring chores, savings goals and spending limits to help instill healthy habits.
Pros: Parents can limit the stores, websites and restaurants their kids spend at with this card. There’s also real-time notification of where payments happened and how much was spent, and you can deactivate the card in the mobile app if it were to ever go missing.
Cons: There’s no way to build credit with this card. Also, it has a monthly fee of $4.99.
Who should apply? Parents trying to familiarize their teens with good financial habits should consider this card thanks to its unique functionality.
Read more on the Greenlight Debit Card review.
Netspend® Prepaid Mastercard® – Proud Partner of MLB®: Best for baseball fans
Why we picked it: For fans of Major League Baseball, this card offers all the benefits of other Netspend Prepaid cards but can be branded with the logo of your favorite team. Receive payments quickly via direct deposit and can earn Payback Rewards on eligible purchases.
Pros: Deposits and other account services can be managed using the Netspend® Mobile App on your phone.
Cons: There is a $9.95 monthly fee in addition to $2.95 for ATM withdrawals, $3.95 for cash reloads, the greater of $5 or 2% a month in payroll fees and a potential $5.95 monthly fee if your account is inactive.
Who should apply? This can be a convenient option for baseball fans in need of sending and receiving payments as well as withdrawing cash.
Read more on the Netspend® Prepaid Mastercard – Proud Partner of MLB®.
Comparing the best prepaid credit cards
|Credit card||Best for…|
|Netspend® Visa® Prepaid Card||Best Visa card for everyday use|
|Brink’s Prepaid Mastercard®:||Best prepaid option from Mastercard|
|Western Union® Netspend® Mastercard:||Best for Western Union members|
|Netspend® Prepaid Mastercard®||Best Mastercard for everyday use|
|Control™ Prepaid Mastercard®||Best for select rewards|
|Self – Credit Builder Account||Best for building credit|
|PayPal Prepaid Mastercard®||Best for PayPal users|
|Netspend® All-Access® Account by MetaBank®||Best for interest savings|
|Greenlight Debit Card||Best for parents|
|Netspend® Prepaid Mastercard® – Proud Partner of MLB®||Best for baseball fans|
How we picked the best prepaid credit cards
Research Methodology: We analyzed dozens of prepaid cards and debit cards to identify the top options on the market. The major factors we considered were:
- Affordability: Prepaid cards require some sort of monthly fee, but we made sure to find options that aren’t packed with added costs and hidden fees.
- Extra perks: Due to the nature of prepaid and debit cards, there aren’t many opportunities for earning rewards, credit-building or access to exclusive perks. If an option provides ways to earn cash back or grow your credit score, we included it here.
- Acceptance: We looked for options that are likely accepted no matter where you spend in 2021. Large card networks and trustworthy banks make this possible.
- Unique functionality: Some of the prepaid and debit cards here provide unique ways to utilize an account. Cards for niche consumers were included in our search.
What is a prepaid card?
Prepaid cards are among the fastest growing financial products on the market. General-purpose, reloadable prepaid cards have grown from a $1 billion purchase volume in 2003 to an expected $352 billion by 2023.
Yet, as popular as they are, there is a ton of misunderstanding about them. For example, although it gets mentioned, there is no such thing as a prepaid credit card – it’s just a prepaid card and they’re almost opposites. Here, we take a look at some common features of prepaid cards and how they compare to other card types.
What are the different types of cards?
Here are the four main types of cards you’ll encounter when looking for a financial card, along with how they work and what makes them unique.
A prepaid card, also called a pay-as-you-go card, is a product that only lets you spend money you’ve loaded onto it in advance. Instead of borrowing money from a bank that you must pay back later (as with a credit card), you are spending your own preloaded money. One of the conveniences of prepaid cards is that they are available almost anywhere, from grocery stores to gas stations, and you can use them anywhere their payment network (such as Visa or Mastercard) is accepted.
Here are some of the most common types of prepaid cards:
- General-purpose reloadable cards
- Gift cards
- Retail cards
- Transit cards
- Health savings account cards
- Payroll cards
- Government benefit cards
How does a prepaid card work?
Using prepaid cards is very simple. You just need to load the amount of money you want to have available for purchases onto the card; then, as you use the card, keep an eye on your balance to be sure it will cover the purchases you want to make. For example, if you load a prepaid card with $100 and buy something for $20, you’ll have a balance of $80 left to spend. If the balance reaches $0, or if you want to make a purchase that exceeds the card’s current balance, you must add more money or cover the difference with another form of payment, as in the case sometimes with a gift card.
A debit card is issued by a bank and linked to a checking or savings account. Each time you use a debit card, you are transferring money electronically from your bank account to pay for your purchase, reducing your bank account balance. You can also use a debit card to withdraw cash from your account via an ATM. Debit cards are a big industry. Wells Fargo dominates the industry, with more than 50 other issuers competing in the market, according to the Nilson report.
A debit card may not have the protections of credit or charge cards, although some financial institutions place protections on their debit cards, and debit cards can have federal deposit insurance through the bank.
If you overcharge, your card may be declined or your bank may charge you overdraft fees to cover the purchase. Debit cards also usually have daily spending limits, so you may not be able to make especially large purchases with a debit card.
A credit card is a lending product that allows you to borrow money from a bank to cover your purchases. Unlike with debit and prepaid cards, when you use a credit card to buy something you are using the bank’s money, not your own. You then pay back the money you’ve borrowed by the due date or pay a minimum with the understanding that you’ll pay interest on the balance in exchange for carrying the debt from month to month.
There are several types of credit cards, and many let you earn rewards on your spending and build or repair your credit history:
A charge card is very similar to a credit card, with a few key differences. As with a credit card, a charge card allows you to borrow money from an issuing bank to cover the purchases you make. The main difference is that a charge card requires you to pay your balance in full each month to avoid a penalty. Unlike credit cards, charge cards have no preset spending limit or APR. These cards tend to have excellent rewards and benefits.
Can you build credit with a prepaid card?
No, there’s no way to build credit with prepaid cards. Credit is established through positive borrowing history. Since you provide the money upfront when you purchase a prepaid card, you’re not borrowing or repaying any money.
While prepaid cards may make sense for some situations, it’s important to build credit. Good credit can be a bridge to the things you want. Having no credit or bad credit can be a roadblock in achieving your goals, such as buying a house, getting that next great job or lowering your insurance premiums. If you want to dip your toe into credit building, explore secured credit cards, which usually provide a low credit limit in exchange for a security deposit.
Are prepaid cards safe?
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 enacted a rule in April 2019 that makes the fees and other details of your card more clear with formatting that’s similar to the credit card Schumer Box.
The new rule also allows you to access your account online, like a bank account or credit card. It also provides greater protection from loss, theft or incorrect charges, according to CFPB.
Is a prepaid card a bank account?
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.
Who should get a prepaid card?
Prepaid cards are best fit for someone looking for a convenient way to pay without opening a credit account. Though a credit account allows for more opportunities, consumers typically choose prepaid cards to control spending, control fees or make purchases.
“A prepaid card may be a particularly good choice for a high schooler or college student,” says CreditCards.com Industry Analyst Ted Rossman.
“A parent could load money onto one of these cards to provide their child with spending money and ease him/her into the process of paying with plastic before transitioning to a ‘real’ credit card. Prepaid cards are also useful for people who are afraid of debt. Be wary of fees, though, and note that you won’t build a credit history or earn too many rewards with a prepaid card.”
Prepaid vs. credit card
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 16.13% per our rate report.
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.
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.
Pros and cons of prepaid 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:
Pros of prepaid cards
- You don’t need a banking account. Unlike a debit card, which is tied to a checking or savings account, your prepaid card stands alone with its own cash.
- Can be used for all manner of spending. If an open-loop card, which means it’s linked to a network such as Visa or Mastercard, then the card can be used at retailers that accept that network.
- Direct-deposit your paycheck. If the card has its own account number and routing number, you can direct deposit and auto debit through your prepaid card without a bank account.
|Card||Direct deposit features|
|Walmart MoneyCard Mastercard||Access money up to 2 days early with direct deposit|
|Netspend Prepaid Mastercard||With direct deposit, you can get paid faster than a paper check|
|Control Prepaid Mastercard||Get your tax refund direct deposited and no waiting in line to cash your check|
- Manage your money. “Most prepaid cards won’t allow you to spend more than the balance of the card,” says Mike Clark, co-owner of B&C Media LLC. “If you attempt to, the transaction will just be denied. So, prepaid cards impose a type of financial discipline – to spend only what you have. Credit cards, on the other hand, allow you to spend more than what you have. For some, the temptation is too great. That’s why 65% of credit card users carry a credit card balance. Those users not only spend beyond their means but also finance their over-spending with high-interest debt.”
- It’s protected. If it is linked to a network, you’ll enjoy zero liability protections. And if you report the loss or theft of a registered card to the issuer, most will restore your original balance and issue a new card.
- No interest. Unlike a credit card, you won’t be charged an interest fee because you are using your own money.
- No credit check. A bank is not checking your credit, which can slightly impact your score.
- Can’t overdraw. There are no overdraft fees.
- Personal information is safe. Your personal information isn’t tied to a prepaid card.
Cons of prepaid cards
- Fees. Some prepaid cards charge fees. “Fees typically include a monthly fee, cash load fees, and sometimes ATM fees,” says Clark. “For a credit card user that always pays her full monthly balance, a prepaid card will always be the more expensive choice. The same is true of checking account debit cards if the consumer qualifies for a free checking account and doesn’t overdraw his or her account.”
- Can’t build credit. Unlike secured credit cards or other credit-building cards, prepaid cards don’t help you build credit, says Jeff White, senior financial analyst for FitSmallBusiness.com. However, “you can build credit through a credit card, and if you pay it off each month, then you’re not being charged any interest.”
- Can run out of money. If you don’t pay attention to how much money you have on your card, you can wind up unable to pay at the counter.
- Fewer protections. “Prepaid cards do not offer as many legal protections to consumers as traditional debit or credit cards,” says Monica Eaton-Cardone, co-founder and COO of Chargebacks911. “For example, let’s assume the cardholder needs to dispute a fraudulent or mistaken charge on her prepaid card. While many card issuers will still allow customers to dispute charges, the consumer doesn’t have a guaranteed legal right like she would with a conventional credit or debit card. Thus, the consumer takes on a greater share of fraud liability when using a prepaid card.”
What to look out for with prepaid cards
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:
- It’s not a credit card. A prepaid card is more like a debit card – once you’ve spent the money on the card, you’re done, unless you reload the card with more funds. With a credit card, you are borrowing money that you will pay back later.
- It’s not tied to a bank account. Unlike a debit card, a prepaid card isn’t tied to a checking or savings account. However, it can have routing and account numbers that you can use to auto-debit or deposit funds.
- A prepaid card has protections. Although it’s not a credit card, as part of a payment network, it has some protections similar to a credit card.
- You can buy it at a variety of places. From grocery stores to minute markets, there are a variety of locations where you can buy a prepaid card. Simply load it with the amount of cash you want, and you’re ready to go!
- It can be used for budgeting. You can load it for a specific type or purchase, such as groceries. Then, when your card runs out of money, you simply stop spending on that item.
- Watch out for fees. There are sometimes surprise fees in a prepaid card, so beware.
- You can’t build credit with a prepaid card. For that, you’ll need a credit card. Start with a secured credit card or an unsecured card for someone with bad or no credit.