Prepaid Cards

What is a prepaid card?

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.

How do prepaid cards work?

A prepaid card is simple: 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.

Your prepaid card works the same as any VISA or MasterCard. 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.

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.

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.