A guide to prepaid debit cards

Imagine you're a college student, just starting out on your own and learning to manage your finances. You want to make purchases online and pay bills, but you're also on a tight budget and want to avoid overspending. Enter prepaid debit cards.

With a prepaid card, you can load money onto the card ahead of time and only spend what you have. This can help to manage expenses, avoid fees and interest charges, and help build good financial habits. Prepaid debit cards can also be convenient for those without a traditional bank account or credit history, as they don't require a credit check or minimum balance.

Whether you're a student, a busy professional, or looking to take control of your finances, prepaid debit cards can be a simple, secure way to make purchases online or in person, withdraw cash from ATMs, and pay bills.

Let's explore how prepaid debit cards work and the potential benefits they can offer.

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

There are some critical differences between a traditional debit card issued by a bank or financial institution and a prepaid debit card. In short, prepaid debit cards offer more flexibility for those who want to budget their spending or don't have a traditional bank account. Here’s what you need to know.

Regular debit cards

A debit card is linked to a bank or online account, so the funds are automatically deducted from the account after each purchase. You can use the card to withdraw cash from an ATM or make purchases at merchants that accept debit cards. Debit cards are typically issued by a bank, credit union, or online provider, and you may need to pass a credit check or meet other requirements to get one.

Prepaid debit cards

On the other hand, a prepaid, reloadable debit card is not linked to a bank account. Instead, you can load funds onto the card or a connected account ahead of time and use it to make purchases, withdraw cash, or pay bills. You can usually add funds to the card through a retail location, bank transfer, or direct deposit from your employer.

Prepaid debit cards are not tied to a credit line or credit score, so there are fewer requirements to obtain one than a traditional debit card.

With a traditional debit card, you may be able to spend more than the balance in your account depending on your provider — though you may then be charged an overdraft fee. With a prepaid debit card, you can only spend the preloaded money on the card, so there are no overdraft fees or interest charges. In other words, if there is $50 on your prepaid card, yet the purchase amount is $75, the transaction will be rejected.

How to get a prepaid debit card

Wondering where to get prepaid debit cards? The process is simple. Here are the steps you can take to get one:

• Research prepaid debit cards. There are many options available from various financial institutions and companies. Look into the features and fees to find one that suits your needs.
• Choose a prepaid debit card provider. This is when you’ll need to fill out an application form online or in person.
• Provide personal information. You will need to provide personal information such as your name, address, date of birth, Social Security number, and possibly a driver's license or passport.
• Load funds onto the card. Once you have been approved for a prepaid debit card, you will need to load funds onto the card to start using it. You can usually do this online, by phone, or in person at a retail location that offers reload services.
• Start using the prepaid debit card. Your prepaid debit card is now ready to use. You can use it to make purchases online and in person, withdraw cash from ATMs, and more. Keep track of your balance and reload your card as needed.

How do you add money to a prepaid debit card?

There are several ways to add money to a prepaid debit card, depending on the card and its provider. Some examples include adding money via direct deposit, an online transfer, mobile check capture, or bank transfer. You can also add money to it via cash reload, which can be done at participating retailers for a fee or sometimes for free.

A helpful tip to remember is many prepaid debit cards allow you to set up direct deposit with your employer, government agency, or other income sources. This is a convenient and automatic way to add money to your card on a regular basis.

Pros and cons

As with any payment method, there are benefits and drawbacks to using prepaid debit cards.

Benefits of a prepaid debit card

Prepaid debit cards come with many advantages, including the following:

• No credit check or bank account required. Unlike traditional credit or debit cards, a good credit score or a working bank account is not needed for a prepaid debit card.
• Helpful budgeting tool. Prepaid debit cards can help you stick to a budget by limiting your spending to the amount of money you have loaded onto the card.
• Curbs overspending. Prepaid debit cards can be used to make purchases online or in store, just like credit cards, but without the risk of overspending or going into debt.
• ATM access. Many prepaid debit cards allow you to withdraw cash from ATMs, which can be convenient when you need cash on hand.
• No overdraft fees. Since prepaid debit cards are not linked to a bank account, you cannot overdraw the account and incur overdraft fees.

Potential cons of prepaid debit cards

Take note of possible disadvantages of prepaid debit cards, such as the following:

• Fees. Some prepaid debit cards may have fees for activation, monthly maintenance, ATM withdrawals, balance inquiries, or other transactions. It's important to read the terms and conditions carefully to understand the fees associated with the card.
• Limited rewards and benefits. Prepaid debit cards may not offer the same rewards or benefits as credit cards, such as cash back, travel points, or purchase protections.
• No credit building. Since prepaid debit cards do not involve borrowing money or making credit payments, they do not contribute to building a credit history.
• Limited acceptance. Prepaid debit cards may not be accepted everywhere that credit or debit cards are accepted, which can limit their usefulness in certain situations.
• Reload limitations. Some prepaid debit cards have limits on how much money can be loaded onto the card or how frequently it can be reloaded.
• No interest earned. Since prepaid debit cards are not linked to interest-bearing accounts, you cannot earn interest on the money you load onto the card.

Prepaid debit cards are a convenient and accessible alternative payment method and can serve as a helpful budgeting tool.

Before you decide on whether a prepaid debit card is right for you, research and compare different card options to find one that meets your needs and helps you achieve your financial goals.