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How do prepaid cards work

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A prepaid card works differently from a traditional credit or debit card. It’s pre-loaded with funds, which means you can only spend the amount of money added to the prepaid card.

Once that balance has been spent, you can reload it with more money. Plus, you don’t need to have a bank account to get one – perfect if you’re one of the 14 million Americans who don’t.[1]

What is a prepaid debit card?

A prepaid card is pre-loaded with funds and you can only spend the amount of money on the card, nothing more. That means you’re not borrowing any money when you buy things with it, unlike a credit card.[2]

Prepaid cards aren’t linked to a bank account either, though they can be issued by banks. So, you don’t need an account to use a prepaid card.[3]

How does a prepaid card work?

To get started with a prepaid credit card, you need to buy one from either a:

  • Bank
  • Credit Union
  • Retailer

Next, choose the type of card you want to use. All prepaid cards (that aren’t store-specific) are partnered with one of the main four card payment providers:

  • Visa
  • MasterCard
  • Discover
  • American Express[4].

Depending on the card you purchase, you may also need to pay an:

  • Activation fee
  • Initial deposit fee
  • Monthly fee to use the card
  • ATM fee for withdrawing cash or checking balance[5].

Then, you’ll receive a temporary card, which you can load using either:

  • Cash
  • Check
  • Direct debit payment
  • Online transfer
  • Mobile payment[6].

Remember, some cards have account limits, which show you how much money you can load them with.

You can then register this temporary card online or call the 800 number associated with the card. Finally, your permanent card will soon arrive through the mail, where your balance will automatically transfer over and you can start using it.

Do I need a bank account to load a prepaid card?

No, you don’t need a bank account to load money on a card as they aren’t tied to a banking institution or credit union. To show how this works, let’s compare them to similar types of cards you can get.

  • Credit cards – prepaid cards are similar, as they’re accepted in most places where credit cards are. Difference is, you aren’t borrowing any money to pay for things.
  • Debit cards – again, they’re similar, as you’re only spending the money you have. However, prepaid cards aren’t linked to a bank account.

Despite these differences, you can still use a prepaid card for many of the things that you’d use a credit or debit card for, including:

  • Withdrawing cash from an ATM
  • Purchasing things online and in-store
  • Managing your money online or on a mobile device.

Though you don’t need a bank account to use a prepaid card, they’re useful preparation if you’re thinking about opening one. Prepaid cards are great as budgeting tools and keeping within your means.

If you try to spend anything over your current balance, the payment will be declined. Prepaid cards can help you to learn how to manage your money and help you to avoid overspending or getting into debt in the future.[7]

Prepaid cards vs. credit and debit cards

Prepaid cards are pretty similar to credit and debit cards, but there are a few notable differences. Here’s a breakdown of all three.

  • Prepaid debit cards, you pay before – the only time you’ll pay is when you load your card with funds.
  • Debit cards, you pay now – whenever you buy something, you’re using money in your bank account, which is taken out as you spend.
  • Credit cards, you pay later – when you spend using a credit card, you are borrowing money from a bank, so you need to pay this back later.

Prepaid cards vs. gift cards

On the face of it, prepaid cards sound a lot like gift cards. They’re both loaded beforehand, with a set amount of money, and can be spent in-store or online.

The main difference is that prepaid cards can be re-loaded with more cash. While gift cards, generally, can’t be used again once the amount they were loaded with has been spent.

Also, gift cards are usually tied to a single retailer or chain of stores. For instance, they might only be able to be spent in one store, or at a mall complex that contains several stores. On the flip side, prepaid cards can be spent anywhere that accepts debit or credit cards.[8]

Paying bills with a prepaid card

The great thing about prepaid cards, is that you can pay your bills from them, provided you’ve got enough money to cover the transaction.

You have a bit of choice here too. You can pay your bills either:

  • Online by entering your card details on the billing website
  • In-store – visiting a location, such as Money Services Express
  • Telephone – giving your details to an official representative[9].

With your prepaid card, you might get an online account to manage your balance. This means you could pay your bills using an online transfer, directly from your account.

You might also be able to set up a recurring payment, to come out on a certain date every month. However, you’ll need to check with your card provider, to see if you can do this first.

What is the best reloadable debit card?

You can buy prepaid cards from the Kroger Family of Stores, to start enjoying bank-free buying. They can be re-loaded at over 130,000 locations and don’t need a minimum balance in order to start using them.

Here are the best reloadable cards we offer:

  • Netspend Visa Prepaid Card – no credit checks, a no-cost Direct Deposit when you pay, it arrives two days before your normal payday and an additional max balance of $15,000.That’s the Netspend prepaid card.
  • PayPal Prepaid MasterCard – link your PayPal card to your PayPal account and transfer money between the two. You can also manage your money on-the-go, with the PayPal Prepaid Mobile App.
  • Green Dot Reloadable Visa Prepaid Card – pay no overdraft fees and, with Free ASAP Direct Deposit™, receive your pay up to two day before regular payday and any government benefits up to four days early.
  • Green Dot 5% Cashback Visa Debit Card – all the benefits of a Green Dot reloadable card, but with the added chance to earn up to 5% cashback on your purchases, capped at $100 per year. Plus, no transaction fees.[10]

Find your nearest location to buy a prepaid card today.

[1] https://apnews.com/article/8b2b93d4e9474c418853e0f20e79aaa8#:~:text=In%202017%20approximately%206.5%20percent,adults%20without%20a%20bank%20account.

[2] https://www.investopedia.com/ask/answers/042315/how-do-prepaid-debit-cards-work.asp

[3] https://www.thebalance.com/how-does-a-prepaid-card-work-960201

[4] https://www.investopedia.com/ask/answers/042315/how-do-prepaid-debit-cards-work.asp

[5] https://moneyservices.kroger.com/prepaid-cards/

[6] https://www.nerdwallet.com/article/banking/prepaid-debit-cards-what-you-should-know

[7] https://www.nerdwallet.com/article/banking/prepaid-debit-cards-what-you-should-know

[8] https://www.investopedia.com/ask/answers/101314/what-difference-between-prepaid-credit-card-and-gift-card.asp

[9] https://www.investopedia.com/ask/answers/110614/can-i-use-prepaid-credit-card-pay-bills-or-transfer-money-other-accounts.asp

[10] https://moneyservices.kroger.com/prepaid-cards/

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