They make it easier to spend and avoid getting into debt, but they come at a price.
What is a Prepaid Card?
Prepaid cards are debit cards Similar to a reloadable or stored-value gift card. You can load it with cash and use it anywhere MasterCard, Visa, or Discover is accepted. Here are many reasons why you might need one.
- You can use Prepaid cards to pay for the money you have already loaded onto your card.
- Although prepaid cards are becoming more popular among the “unbanked,” some people use them with a checking account to limit discretionary spending.
- In addition to a monthly fixed fee. Before buying a card, understanding the details is a good idea.
Prepaid Cards: How Do They Work
Prepaid debit cards can be purchased at convenience stores, supermarkets, and other outlets directly from the company that issued them. There is no credit required. Only what you put on your card can be spent. Although a poor credit history won’t affect your chances of getting a prepaid credit card, it will not help your credit score. A regular debit card is not eligible because it’s not reported to the credit agencies.
Can load cash onto your card at any ATM, participating stores, or via direct deposit cards come standard with routing and account numbers to make arrangements for direct deposit of your pay or other government benefits.
You can use your card the same way as a regular credit or debit card after that. You can make online and in-store purchases, pay your bills, and withdraw cash from an ATM. You can access apps from many companies that offer these cards to track your balance, view your transactions, and transfer money.
You can reload your card with more additional money if you have a low balance or any other time you choose.
A prepaid debit card is not like a regular debit card. These cards are popular among unbanked adults, who may not have or want a traditional bank account but need an alternative to cash payments. It is becoming increasingly difficult not to have a card, with cash-free transactions becoming more common.
The Pros and Cons of Prepaid Cards
Prepaid cards can be used in many ways, just like credit or debit cards. However, they have certain advantages over other payment methods. These are some of them:
Prepaid cards can be a great way of avoiding debt. You can only spend the amount that you have already deposited. Can also use these cards to budget. You can set aside a fixed amount each month on your prepaid card for specific spending categories such as dining out. Your monthly allowance will decrease, and you can’t use it again next month.
Avoid Overdraft Fees
Customers who overdraw their checking accounts are not afraid to pay steep penalties. According to Moebs Services, the national average overdraft fee was $33 per transaction last year. While some banks allow you to turn off overdraft protection, in which case your debit card may be declined if you don’t have enough funds to cover the transaction, it is possible to obtain one of many prepaid cards that don’t charge any fees.
Even if fraudsters target your card, you can not lose more than your prepaid card balance. You can use a debit card to protect your liability. Still, many consumers prefer to use a prepaid card for online and in-store transactions, as they offer more excellent protection than their entire checking account.
Cards marketed as prepaid cards are now covered under the Electronic Fund Transfer Act. This means that card issuers must investigate and reimburse you for any unauthorized charges or errors as long as you report them promptly. The card network may offer additional protections. However, you must register your card with the issuer to receive these benefits.
Additionally, most cards are covered by the Federal Deposit Insurance Corporation. This protects balances up to $250,000 in case of a bank failure (again, you must register your card to get coverage). If they do not offer FDIC insurance, issuers must warn you.
Recover from a bad banking history
Unpaid fees from your previous bank could be a problem when you open a new checking account at another institution. Before opening an account, banks will request a history report from your bank. This report will list any accounts that were closed for the cause. Prepaid cards can be the best way of avoiding debt. Get a card even if you have exhausted all other options.
Teach children how to manage their money
Prepaid cards can be the best tool to teach kids money management and navigate an ever-changing economy. Prepaid cards specializing in this market make it simple for parents to add money or an allowance to their child’s card.
Get some Rewards
Prepaid cards can also offer rewards programs similar to credit cards. For example, the American Express Serve Cashback card offers unlimited 1% cashback on all purchases.
Prepaid cards can be beneficial, but there are also some drawbacks.
No credit report
Unlike other debit cards, prepaid cards do not report transaction information to credit bureaus. This means they won’t value anyone trying to improve their credit score or build credit history. You might be better off applying for secured credit cards. This is a credit card designed for poor credit histories or limited credit. Secured cards will report all bill payments to the three major credit bureaus.
Fees – and many
You may be charged an activation fee, monthly, or transaction fees depending on which card you choose. Reloading fees can also apply. Inactivity fees may be assessed if your card isn’t used for a prolonged period. It’s not surprising that fees can quickly add up and drain your card balance.
The Green Dot Visa Debit Card offers a 2% cashback reward. The card’s 2% cashback bonus is appealing, but there are a lot of fees. These include $5.95 to reload your balance at a register and 50 cents to check your balance at an ATM out of network. This fee is in addition to the $9.95 monthly service charge. An expedited delivery costs $5, while replacement cards cost $5. Cash withdrawals from a bank will cost $3.
In 2019, the Consumer Financial Protection Bureau introduced new rules to allow you to compare fees for prepaid cards easily. Issuers must now provide information inside and a chart listing the card’s fees. The company website must also contain information about fees.