Prepaid Cards: The Checking Account Alternative
- 100% Guaranteed Approval
- No Overdraft Fees
- No Bounced Checks
- Multiple ways to deposit money Direct Deposit, 100,000+ Locations
(Walmart, Safeway, Western Union, etc...)
- Access to a MasterCard® or VISA® Card
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Before you apply for a prepaid debit card we recommend that you review and verify the card’s terms and conditions on the prepaid card company's web site. Please let us know if you find any differences related to the Prepaid Cards shown on this page.
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What is a Prepaid Card and How Does It Work?A prepaid card is essentially a debit card with two major exceptions: it does not require a bank account and it comes with guaranteed approval. The way it works is that you load money onto a pre-paid, re-loadable account, and spend it until that money runs out. You can easily add money to your prepaid account with cash and in person at thousands of locations, including major grocery stores, drugstores, and gas stations. Prepaid cards also give you the option to have your paychecks directly deposited into your account. This is a much cheaper way to cash your paychecks than going to check cashing stores. A prepaid card works the same as any MasterCard or VISA card. Not only is it useful for making purchases and withdrawing cash, but it also gives you the option to pay your bills online, as opposed to mailing in a check.
Prepaid Card Features & LimitationsFeatures
- No need to carry cash: You can load a large amount of money onto your card, which eliminates the need for paper money and coins. Plastic also can protect you from being an easy target of pickpockets.
- Direct deposit option: Many prepaid cards offer the option to directly “load” your payroll or government benefits to your prepaid account. Either your employer or government agency will provide the prepaid card to you, in which case they are called a “payroll” or “government benefit” card, respectively.
- Online bill pay: Not only can you use a prepaid card to make purchases online, much like with a credit or debit card, but some prepaid cards also offer an online bill payment service that enables you to pay monthly billers that do not accept plastic, or even send checks to friends and family.
- ATM cash withdrawal: When you register your prepaid card, you also will receive a PIN number to help you access cash easily.
- No initial deposit: Unlike traditional checking accounts that require initial deposits, usually with a minimum amount, you won’t be required to “load” a specific initial amount onto your card when you purchase it.
- Second-chance checking: Prepaid cards are useful alternatives for consumers who’ve experienced difficulty qualifying for a traditional checking account or simply don’t want to open one.
- Overdraft fees: Prepaid cards do not allow you to overdraw your account, which means you don’t have to worry about overdraft fees.
- Multiple cards, single account: Some prepaid cards allow you to purchase a second card for a family member. Both cards will be linked to one account, so both cardholders will have access to the same amount of funds.
- Credit building: As previously mentioned, you can’t use a prepaid card to build your credit. Neither debit nor prepaid card activities are reported to the three major credit bureaus. Some prepaid card issuers, however, will offer short-term loans after successfully making two direct deposits to your prepaid account. If you’re approved, your loan payments will be recorded on your credit history. If your goal is to build credit, you should instead apply for a secured credit card.
- Significant variability: Prepaid cards are a relatively new form of payment and have yet to be regulated in any significant fashion. As a result, there is very little uniformity in the market. That means the fees and features you’ll find from card to card may vary significantly. For instance, some prepaid card issuers make it very difficult to load a physical check into your account, while others make it as simple as snapping a picture with your cell phone. In addition, usage may be free or may cost a few hundred dollars a year, according to CardHub’s 2014 Prepaid Card Report. Consumers must therefore remain vigilant when it comes to comparison shopping.
- No credit line: Depending on your perspective, the inability to revolve a balance on a prepaid card may be construed as an inherent disadvantage. On the other hand, debt adverse consumers likely consider this a major plus.
Should I Get a Prepaid Card?A prepaid card is a good option if you need an account that allows you to deposit money, pay bills, make purchases with plastic, and withdraw cash at ATMs. As a result, having access to a prepaid card allows you to buy things online and, depending on the policy of the particular company, even rent a car or book a hotel room. If you're wondering whether or not a prepaid card is right for you, it will help to know that prepaid cards have three primary applications: 1) As replacement checking accounts; 2) As financial literacy teaching tools; and 3) As check cashing alternatives. Below you will find an explanation of how prepaid cards serve these purposes and what you should look for when trying to find the right prepaid card for each:
- Replacement Checking Account: Pretty much everything you can do with a checking account/debit card can also be done with a prepaid card; you just won’t have an actual checkbook. If you plan on using your prepaid card as a replacement checking account, either because the cost of your traditional checking account has risen or you cannot get approved for a traditional checking account, you obviously want one that offers free direct deposit, ATM withdrawals, and online bill pay. In addition, if you are utilizing direct deposit, it's fair to expect not to be charged any monthly fees.
- Financial Literacy Teaching Tool: Loading your child's allowance onto a prepaid card is a good way to get them started on the road to financial responsibility. Prepaid cards offer online account management, which allows you to review your child’s spending habits with them. You can also give them enough money to last a couple of weeks in order to instill the importance of budgeting. Just getting used to making transactions with plastic will be a benefit as well.If you plan on using your prepaid card as a financial literacy teaching tool, you’ll want a card that has a low monthly fee and no fees for in-network ATM withdrawals or making purchases. In addition, you should avoid cards with inactivity fees or fees for customer service because you don’t want to get your child in the habit of having to make purchases or prevent them from asking questions.
- Check Cashing Tool: Many people cannot utilize direct deposit, but need to cash paychecks nonetheless. Check cashing stores tend to be expensive, so if you can find a prepaid card that allows you to load checks and withdraw cash for free, that would save you a lot of money in the long run. If you plan on using your prepaid card in this manner, you’ll most likely need a card offered by a large national bank with nearby branches, like the Chase Liquid Card. It's important to note that if you're interested in building your credit history, a secured credit card is a much better option than a prepaid card. Some prepaid cards will allow you to apply for a short-term loan once you have met certain requirements, such as making two direct deposits on your prepaid account. If you are approved for this loan, then your payment history will be reported to the three major credit bureaus.
Tips for Picking the Right Prepaid Card
- Compare All Available Options: Much like choosing the best credit card for your needs necessitates comparing offers across issuers and product segments, the odds of finding the right prepaid card decline the more you refine your search. So, start by leaving preconceived notions at the door, compare multiple prepaid card offers, and consider whether or not other types of financial products can fulfill your particular needs at a lower cost.
- Evaluate Costs Based on Actual Needs & Spending Habits: People have a tendency to become overly focused on major fixed costs like annual and monthly service charges. Such costs are certainly important, but you also mustn’t forget that prepaid cards are known for charging many different small fees that can add up over time. As a result, it’s important to determine exactly how you plan to use your prepaid card (i.e. how you’ll load funds, the number of ATM withdrawals you’ll make, etc.) and then evaluate the cost of each offer in terms of that usage. After all, there is a wide disparity between the best offers on the market (which can be essentially free to use) and those that can end up costing you a few hundred dollars each year.
- Don’t Forget About Online Bill Pay, Loading Options, or ATM Access: While cost is undoubtedly important, even a free prepaid card will be effectively useless if it doesn’t offer all of the features you need. As many as 31% of prepaid cards are unsuitable to consumer needs due to a lack of key features.
- Read the Fine Print: This advice applies to any financial product you’d apply for, but it’s especially important to verify that there aren’t any hidden fees or caveats associated with a given prepaid card because their newfound popularity means they aren’t regulated quite as well as other, more established types of products.
- Use the Island Approach: While the Island Approach is more commonly associated with credit card use, the idea of using different financial accounts to meet different financial needs can apply to prepaid cards as well. For example, some folks may want to get one prepaid card to use as an alternative checking account and another to monitor a child’s spending.
What Does the Term Prepaid Credit Card Mean?Prepaid credit card is a misleading term encouraged by prepaid card issuers because it implies that their products have a combination of the best attributes found on prepaid cards and credit cards. One might think that prepaid credit cards would offer lines of credit and credit bureau reporting in addition to standard prepaid card features like guaranteed approval and no initial deposit. However, none of the prepaid cards currently on the market offer lines of credit or report to the major credit bureaus. If you are looking for a second chance checking account, get a prepaid card. But if you want to build or rebuild your credit standing, you should open one a secured credit card.
Prepaid Card vs. Credit CardPrepaid, or stored value, cards and credit cards have several primary differences:
- Source of Funds: Whereas a line of credit allows you to spend now and pay later, prepaid card users may spend only the amount loaded onto their cards. Once the balance is depleted, the card no longer may be used until the account is replenished. Simply put, when you use your credit card, you’re borrowing money. When you use your prepaid card, you’re using money you’ve “loaded” onto your card in advance.
- Credit Building: Prepaid card spending, unlike credit card activity, isn’t tracked by the three major credit bureaus. It therefore cannot help you establish or build credit. If you’re looking to do so, we recommend applying for a secured credit card, which are especially useful for people with poor or no credit.
- Cost Structure: The primary cost of credit card use derives from interest payments for those who revolve a balance as well as annual membership fees for rewards card holders or people with little or bad credit. Prepaid cards, on the other hand, are known for charging a variety of small fees that can quickly add up over time.
- Rewards: Credit cards are known for providing rewards – whether cash back, points or miles – for every purchase a cardholder makes. While some prepaid cards may provide modest rewards, such perks are far less common with that type of payment vehicle.
How to Activate & Reload a Prepaid CardActivating In order to activate your prepaid card, you must provide your full name, street address — P.O. boxes are not allowed — date of birth, Social Security Number or other taxpayer ID number. If you are not a U.S. citizen, you’ll be required to provide another type of identification such as your passport number, alien registration number or other government-issued document that displays your information and photograph. Prepaid card issuers are required by law to obtain this information from customers before activating a card. Reloading There are multiple ways to replenish or reload money onto your prepaid card. You usually can find reload instructions on the card’s packaging or the issuer’s website. Below are some of the common methods.
- Direct Deposit: You regularly can reload your prepaid card by signing up for direct deposit through your employer or a government agency. With direct deposit, you can receive your paycheck, tax refund or government benefits such as unemployment, Social Security or child support automatically in your prepaid account. Businesses and governments have different procedures for setting up direct deposit. Ask your employer or government agency for enrollment instructions. Direct deposit is by far the most cost-effective means of loading money to a prepaid card.
- Account Transfer: With many prepaid cards, you can transfer funds from your checking account, if you have one, to your prepaid account. Other prepaid cards allow the user to transfer from another prepaid card. You may be charged a fee for doing so, but you may be able to avoid the fee if you make the transfer online. In some cases, you may even reload through PayPal, an alternative payment system.
- Reload at Retail Locations: Normally, you can reload your card at the store where you bought it. You also can deposit cash at various locations, including grocery stores, check-cashing stores, gas stations, drugstores or money-transferring agents such as Western Union or MoneyGram. In any case, check with the provider that issued your card for reloading instructions — your provider may have a unique procedure.
- Reload Pack: With certain prepaid cards, you can add value to your prepaid card by purchasing a reload pack, which is typically available at the same retailer that sold the card. Each pack comes with a preset minimum value, say $20, and a maximum value of maybe $500. Also remember that some packs can only be purchased with cash. One of the most common reload packs is the MoneyPak from GreenDot.