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Is a reloadable prepaid debit card right for you?

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A reloadable prepaid debit card acts in a similar way to a regular debit card in terms of making purchases. You can use a prepaid card to buy things in the same way as you would use a debit or credit card.

The key difference is where the money comes from. While a regular debit card is attached to a bank account and draws money from there, a prepaid card needs to have funds loaded onto it before it can be used.

You can usually do this in person at the store where you buy it, over the telephone, online or using direct deposit. Reloadable prepaid cards can be useful for keeping track of spending, setting spending limits or carrying out transactions without a bank account. You can also buy them for kids to help them learn how to manage their own finances without having to carry a lot of cash.

What can you do with a prepaid debit card?

Once loaded with money, you can essentially use a prepaid card in exactly the same way as you would use a regular debit or credit card. They can be used to:

  • making purchases online
  • paying bills
  • buying groceries or clothing
  • settling the bill in a restaurant
  • online applications such as ride-sharing apps

Some can even be used in ATMs to withdraw cash from the balance. A prepaid Visa card or Mastercard, for example, can be used at any retailer or cash machine that accepts those brands. Certain cards can also be linked to a checking account, allowing you to add funds quickly and easily while still keeping track of you or your child’s spending.

The benefits of reloadable debit cards

There are several advantages to using reloadable prepaid debit cards. Prepaid cards do not require any credit checks, so they can be used even by people with a poor credit score or limited credit history. More importantly, they will not affect your future credit score.

Prepaid cards allow for easier budgeting, as the cards can only be used up to the amount loaded onto them. They allow those without a bank account to enjoy the advantages of being able to pay by card, such as shopping online and not having to carry large amounts of cash.

They can also help avoid bank fees for credit cards or other services. Prepaid cards are especially useful tools for people on fixed incomes, or young adults learning how to budget their allowance.

The disadvantages of reloadable prepaid debit cards

While there are many advantages to prepaid cards, they may not be right for everyone.
Depending on the type of card used, there can be fees for adding funds to the card, or other services such as activation. Any funds loaded onto one will also not earn interest as they would in a savings account.

While they can be an excellent way of preventing overspending when budgeting, there are no records kept of transactions, so it may be harder to see where spending cuts can be made if you’re trying to save. A prepaid card does not rely on a good credit score or impact your score, but it also will not count towards building a stronger financial history to improve credit scores in the future.

Reloadable prepaid debit cards vs credit and debit cards

In terms of using the cards at a point of sale, there is little difference between a prepaid card, a debit card linked to a checking account and a credit card. However, there are several key differences in terms of managing finances.

  • If the balance on a prepaid card runs out, future transactions will be declined until the card has been reloaded
  • Purchases need to be planned in advance to ensure there are funds available on the card
  • Prepaid cards do not offer credit
  • There are often fees associated with the use of prepaid cards, including activation fees, deposit fees and ATM transaction fees
  • There is no function to cancel payments once they have been made using a prepaid card
  • You cannot build credit using a prepaid card – if this is your aim, you may want to consider a secured credit card

FAQs

Do I need an ID to get a prepaid debit card?

Most retailers will require some form of identification before issuing them. This could include your proof of name and address, Social Security number, date of birth or Taxpayer number.

Do prepaid debit cards issue statements?

In short, no. Prepaid cards do not provide the user with a statement of transactions, so keeping track of spending is up to the user.

What is the difference between a prepaid card and a regular debit card?

A regular debit card is linked to a checking account, so all funds in that account can be accessed for payments. With a prepaid card, only funds that have been added specifically to the card can be used to make purchases.

Will a prepaid card affect my credit score?

No – as they are not linked to a line of credit, using a prepaid card will not affect your credit score. They will also not improve your credit score.

Can I start using my prepaid card immediately?

Prepaid cards usually require activation before they can start to be used. Once activated, you will need to load funds onto the card before you can use it.

How do I activate a prepaid card?

Prepaid cards usually require activation before they can start to be used. Once activated, you will need to load funds onto the card before you can use it.

 

 

 

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