What is a prepaid card?
A prepaid card is a card you can use to pay for things. You buy a card with money loaded on it. Then you can use the card to spend up to that amount.
A prepaid card is also called a prepaid debit card, or a stored-value card. You can buy prepaid cards at many stores and online.
Many prepaid cards come with the Visa or MasterCard logo. These prepaid cards look just like a credit card.
Why would I use a prepaid card?
- Prepaid cards are a convenient way to pay for things if you are not carrying cash.
- You do not owe a bill since you are using money you already have.
- You do not need a bank account to use a prepaid card.
- You do not need a good credit history to use a prepaid card.
How do prepaid cards work?
Prepaid cards work like debit cards. But you do not need a bank account to get a prepaid card. Here is how a prepaid card works:
- You get a card from a store or company.
- Sometimes, you buy a card in a certain amount. You might pay $50.00 for a card. That means you can use that card to spend $50.00.
- Sometimes, you buy a card and then add money to it.
- You can use the card to buy things in stores. You also can get cash from an ATM.
- Your card stops working when you spend all the money you added.
- You can add more money.
Unlike most debit cards, many prepaid cards charge very high fees.
What kind of fees do prepaid cards charge?
You might have to pay fees to:
- buy a card
- add more money to a card
- buy something with the card
- find out what your balance is, or how much money you have left on the card
- use an ATM with your card
Why are prepaid cards popular?
Prepaid cards can be convenient for people who do not carry cash. Prepaid cards also are easy to get.
The businesses that sell prepaid cards advertise them. That means you might hear about them.
Some businesses use celebrities to advertise their cards. Some businesses also say that prepaid cards are good for people who do not have a bank account. The businesses might say prepaid cards are a good way to manage your money.
Do prepaid cards help my credit history?
Most prepaid cards do not help you build a credit history. Your credit history describes how you use money. Businesses look at your credit history before they give you a loan, a credit card, or sometimes a job.
What is the difference between a prepaid card and a secured credit card?
With a prepaid card:
- I can just buy one
- I pay very high fees
- My money earns no interest
- It does not help my credit history
With a secured credit card:
- I have to apply for one
- I pay some fees, usually lower
- My money might earn interest
- It can help my credit history
Prepaid cards are another way to pay for things. You add money to a prepaid card and use it like a debit card. But you pay very high fees to use a prepaid card.
How do I choose a prepaid card?
If you decide to use a prepaid card:
- find out what fees you will have to pay
- see which card has lower fees
- do not buy a card because you like the celebrity who talks about it. It may have higher fees than other prepaid cards
How do I compare prepaid cards to other choices?
Prepaid cards can cost a lot to use. You might want to compare other ways to spend your money.
Choose at least two of each to compare:
- prepaid cards
- secured credit cards
- checking accounts in a bank or credit union
For each type of card or account, answer these questions:
- What are the fees? Look for:
- low activation fees
- low annual fees
- low ATM fees
- Will the card help your credit history? Some cards send information to the three credit reporting companies. That might help you build a credit history.
- Does your deposit earn interest? Sometimes you can earn interest on the money you put on a card or in a bank account.
What is the difference between a debit card and a prepaid debit card?
A debit card is linked to your checking account, while a prepaid debit card you pay in advance to load funds onto the card. A prepaid debit card can be very different from a bank account debit card, in the way you load and spend funds, the fees for using and having the card, and the consumer protections that apply to each type of card.
Even though it’s called a debit card, a prepaid debit card is very different from a bank account debit card. A bank account debit card is linked to your checking account; a prepaid debit card is not. Instead, you pay in advance to load funds onto a prepaid card, and then use the money you have loaded onto the card.
In most cases, you can’t spend more money than you have already loaded onto your prepaid debit card, but with bank account debit cards, if you opt into your bank’s overdraft service, the bank may cover the cost of a purchase that exceeds what you have in your account, and charge you a fee (as well as requiring you to repay the overdraft.)
In addition, prepaid debit cards may carry fewer consumer protections in the event of loss or a disputed charge than debit cards.