What’s a Prepaid Card? Everything You Need to Know

You certainly know a lot about credit cards and debt cards, but just what’s a prepaid card? Here’s everything you need to know. Cold hard cash is going out of style pretty fast. Chances are you have more cards in your wallet than bills these days.

Chances are you’ve got a mix of credit cards and debit cards in your wallet that you use to pay for everything. The card you use depends on the circumstances.

For big purchases you want to pay off over time or unexpected expenses, credit cards are lifesavers. The fact that you can rack up points for each of these purchases is another awesome benefit. For regular, everyday purchases, your debit card allows you to pay with the money you have in the bank, which is smart budgeting. 

There’s another type of card that you might not have in your wallet – a prepaid debit card… Wondering “What’s a prepaid card are how are they used?” Read on to find out!

What’s a Prepaid Card and How Do They Work?
A prepaid card is a debit card that has a set amount of money on it, kind of like a gift card. But prepaid cards can be used anywhere, just like a regular debit card. 

Prepaid debit cards can be ordered directly from the banking institution – like Visa or MasterCard – or they can be purchased over the counter at stores. When you order a prepaid debit card through a banking institution, you decide how much money is loaded onto the card. The card gets sent to you and you activate it just like you would a regular debit card or a credit card. 

When you purchase a prepaid debit card at a store, the amount is already set. You purchase the prepaid card for that amount. Usually, these cards are available in $25 increments. 

You can use the prepaid debit card the same way you would a regular debit card. You can use it at an ATM to withdraw cash or you can swipe it to purchase at the counter. You can even use it for online purchases the same way you would a debit or credit card.

When you’ve spent the amount of money that’s loaded on the card, the card is no longer usable. It’s not like a credit card where you spend up to a credit limit. And it’s not like a debit card where you can overdraw your account if you spend too much. When the money’s gone, the card is useless. 

Why Use Prepaid Debit Cards?
Many people choose to use prepaid debit cards as a way to control their spending or others’ spending.

Parents will often get prepaid cards for their children. This ensures that they don’t overspend the way they could if they had access to their parents’ credit or debit cards. Some people use prepaid debit cards as a way of controlling their monthly budget. They get prepaid cards for certain things on their monthly budget, like groceries. When all the money on the prepaid card is spent, they cannot spend on that budget item anymore. The hard spending limit forces them to be frugal. 

Prepaid debit cards also make fantastic gifts for any occasion. They’re more versatile than gift cards because the money doesn’t have to be spent at one specific place. The person receiving the prepaid card can spend the money however they’d like.

Businesses also frequently use prepaid debit cards. Some use them as rewards for employee recognition. Others use them to control the spending of traveling employees. Some banking institutions now give out a prepaid debit card as a way to distribute loans. 

Prepaid cards are an easy way to control spending and distribute money in a regulated manner. 

Advantages of a Prepaid Cards
Unlike with a regular debit card, there’s no chance of overdrawing your bank account when you use a prepaid debit card. The card isn’t linked to your bank account at all, so there’s no chance of spending that last dollar. 

Unlike with a credit card, prepaid debit cards don’t accrue debt. You’re spending money that you already put onto the card, not money that you need to pay back later.

Prepaid cards are a great way to protect both your money and your credit score because they only allow you to spend what you’ve already put in.

Downsides of Prepaid Debit Cards
Though prepaid debit cards are very convenient and fiscally responsible, there are some downsides.

For one, using a prepaid card doesn’t help you build credit. The banking institution providing the card isn’t issuing you a line of credit, you’re paying for the prepaid card. If you need to build credit, you’ll want to get a credit card instead of a prepaid card. And make sure you make all your payments on time!

Another downside is that prepaid debit cards typically have fees that a regular debit card wouldn’t. There are usually fees to use an ATM. There’s no way to avoid the fee by using a specific bank’s ATM because the card isn’t associated with a specific bank like a regular debit card.

If you’re not planning to use your prepaid card at the ATM too often and you’re not worried about building credit, then using a prepaid debit card is a perfect choice. 

Choosing a Prepaid Card, Debit Card, or Credit Card
Choosing whether to get a prepaid debit card, a regular debit card, or a credit card really comes down to how you’re looking to spend your money.

An easy way to think about it is that a prepaid card is spending upfront to spend more later. A debit card is spending money you’ve already made. And a credit card is paying back money after you spend it.

If you’re looking to control your spending or give easily accessible money to someone else, then a prepaid debit card is the perfect solution. Hopefully, we’ve answered the question, “What’s a prepaid card?” and many more. For more information about managing your money, check out the Lifestyle section of our website.


The Yucatan Times
Lifestyle and finance