A prepaid card is a card that can be loaded with funds that aren’t linked to a bank account. The user can spend up to the amount of money on the card. These prepaid forms of payment are often used as gifts and rewards, but people with limited access to standard banking options as well as those with limited budgets often use them in lieu of a checking account. Just like credit cards and debit cards, prepaid cards have their own pros and cons. With a prepaid card, you load money onto the card and then use it to make purchases or withdraw money from an ATM. You can put money onto your prepaid debit card with any of these options:
- Arrange for a paycheck to be directly deposited onto the prepaid card.
- Add funds to your card at retailers or financial institutions like a Walmart or currency exchange location
- Use a reload card which works just like a gift card (it contains a code that becomes linked to the amount of money you paid the cashier. You can then load the card over the phone using your code)
- Transfer funds onto your card from an existing bank account
Note: Be mindful that some loading methods may come with a small fee.
There are different types of prepaid cards to choose from: free prepaid debit cards, reloadable prepaid cards with no fees, and no limit prepaid debit cards, to name a few. Make sure you understand the terms and limits of this type of card before you use one.
Benefits of the prepaid card
A prepaid card is different from a debit card based on the fact that you don’t need a bank account to have a prepaid card. And, when you get a prepaid card you won’t be subject to any credit checks or inquiries into your banking history because you are using loading your cash onto the card. Prepaid cards are often a good option if you don’t have access to a credit card or bank account or you’re trying to budget using mainly cash. Another perk, you may be able to deposit your check right onto your prepaid card, which is the case for RushCard.
Disadvantages of the prepaid card
While many turn to prepaid cards for convenience, these cards have some significant limitations. The most important disadvantage is that prepaid debit cards tend to include a lot of fees. For example, you’ll often be charged fees for initial setup, monthly maintenance, reloading your card, using an ATM, and more. Fees can also vary based on the plan you select, like with the Netspend prepaid card.
If you have bad credit, keep in mind that these cards also won’t help you rebuild your credit. You also won’t have access to banking services or the ability to stop payments. Banking options such as Chime provide a great alternative to prepaid cards and allow you to open a bank account with bad credit and require no deposit.
Are prepaid cards safe to use?
While prepaid cards can look and feel like debit cards, they aren’t as safe as debit cards. Why? Since debit cards are connected to your checking account, you can easily monitor your account and spending online for free. Your money will also generally be protected if your debit card gets lost, stolen, or wrongfully charged. Prepaid cards don’t offer fraud protection like a typical debit or credit card, and if your card is stolen, there is no requirement for the issuer to replace the funds.
Even with the rollout of the new Consumer Financial Protection Bureau (CFPB) rules, in 2019, prepaid cards that aren’t registered with your name and personal information won’t be required to offer this protection.
