Your Guide to Prepaid Debit Cards

A prepaid debit card has its perks and its downsides. These cards are an alternative form of payment that allow a user to only spend the money that has been loaded on the card. Reloadable prepaid cards can be used in any store that accepts the payment network of the prepaid card, such as Visa or Mastercard. Banks and other financial institutions also offer prepaids like a Chase prepaid card. 

Although it may have the word “debit” in it, prepaid cards and debit cards are not the same. Unlike debit cards, prepaid cards are not attached to a savings or checking account. These cards only carry the money that has been loaded on to them. This is what makes them a great tool for budgeting and those who want card without the monthly fees attached. Information for the best prepaid debit cards, the pros and cons of prepaid cards and how they work is available.

What are prepaid debit cards and how do they work?

Prepaid cards are one-time use cards that function like debit cards without a bank attached to them. These cards are safer and more convenient than only using cash. Most cards are general reloadable prepaid cards and they provide the convenience of making purchases online or over the phone when you do not have a bank account. You can reload these cards with direct deposit, bank transfers, mobile check deposits and cash reloads. 

You cannot open a line of credit with it so you cannot accrue debt the same way you would with credit cards. You can get a prepaid cash card through a store, online or at a bank branch. When you buy and load the card, you will have to pay an additional purchase fee. Some cards may also apply monthly fees, ATM withdrawal fees and other fees that are associated with a debit card. Prepaid cards also look just like debit cards. They have the name of the user, the card number, expiration date and security code. 

When you need to reload the prepaid debit card, you can go to a designated store, the website the card belongs to or any financial institution. Once you load money on the card, the total amount becomes your total balance. Prepaid cards can also be used to set up direct deposit. From your paycheck to an IRS refund, if you provide the right direct deposit information, you will receive your automatic deposits.

The Pros and Cons of Prepaid Debit Cards

In order to find the best prepaid debit cards, you need to consider the possible advantages and disadvantages of having this type of card. Although they are convenient in many ways, they do not fit everyone’s lifestyle. 

Advantages

One advantage to having reloadable prepaid cards is that it will not rack up debt. The only way to accrue debt is to continuously overdraw money from it. At that point, you will be charged a fee. However, if you do not choose overdraft protection, then you are likely to not receive that fee. 

Additionally, when you get a prepaid cash card, there are no credit checks. As a result, they will not run a hard inquiry on your credit report. If you have had any negative items on your credit report, then a prepaid card can be very beneficial for the previous reason.  

If you are someone who has family members who need a card, like a college student or high schooler, then prepaid cards may be a good option. Parents can provide an allowance by using this alternative payment method. It is important to find the best prepaid debit cards appropriate for your family member. This method can be easier to provide a card to a younger family member than adding them as an authorized user for a credit card. 

Disadvantages

One major drawback to having a prepaid card is the amount of fees they come with. Luckily, there are many reloadable prepaid cards with low fees. However, you must consider whether you prefer to pay for something you can do for free with cash or a free checking account. You need to consider the value a prepaid card will give you is worth the fees.

Even though you do not accrue debt with a prepaid cash card, you are not building any credit with a prepaid card. The payments you will be making do not go towards consumer credit bureaus. If you would like to build credit, consider using a secured or unsecured credit card. 

Additionally, prepaid cards are only minimally secured. Debit cards are attached to checking accounts, which are insured by the FDIC for up to $250,000. There is no guarantee that the user will be protected from fraudulent purchases. 

Choosing the Right Prepaid Debit Card

Choosing the right reloadable prepaid card means knowing about the features of the card. Selecting the right card also involves knowing what you will use it for. Once you know, it will be easier to make decision. 

For example, if you are planning to only add money through direct deposit, then perhaps cash reload fees would not be as much of an issue. Someone who is constantly reloading their card using another method may need to find a different prepaid card with lower fees. 

For example, Chase prepaid card does not charge any fees for opening buying or loading your card. The card costs a flat rate of $4.95 per month. This prepaid debit card has the benefits of many checking accounts like online bill pay and an app. If you are looking for a prepaid card while you are on a low budget, then the Chase card can be a good option. 

If you are wondering what is the best reloadable debit card that offers subaccounts, then consider American Express Serve. This prepaid cash card does not charge reload fees and provides subaccounts for free. ATM withdrawals are free if you use a MoneyPass ATM. American Express Serve also provides free online bill pay, card replacements and customer service.