Prepaid Card

Prepaid card summary:

• A prepaid card is a payment card that works anywhere debit and credit cards are accepted.

• You need to deposit money onto a prepaid card first before you can use it.

• Prepaid cards typically charge fees, which may include an activation fee, reload fee, and monthly fee.

Prepaid Card Definition and Meaning

A prepaid card allows you to spend money that has already been loaded onto the card. You can use a prepaid card to pay for purchases in stores, online, and over the phone, just like with any other payment card. Prepaid cards are an alternative to debit and credit cards and aren’t connected to a bank account or a line of credit.

Key Aspects of Prepaid Cards

With a prepaid card, you deposit money first, and then you can spend that money when you pay using the card. Prepaid cards look and function similarly to debit and credit cards. You can use a prepaid card for in-person transactions, and each prepaid card also has a card number you can use for online shopping.

One of the advantages of prepaid cards is that practically anybody can get one, which isn’t the case with other payment cards. You need to open a bank account to get a debit card. If you want a credit card, you need to apply, and the card issuer will most likely check your credit to decide whether to approve your application.

Prepaid cards don’t have a bank account or credit score requirement. All you need to do is choose a card provider online or go to a retailer that offers prepaid cards. If you’re building credit or rebuilding credit after paying off debt, you could use a prepaid card until you’re able to qualify for credit cards again.

Using a prepaid card could also help you stick to a budget. Since you can only spend what you put on the card, a prepaid card can be good motivation to track your expenses and stick to spending limits.

Types of Prepaid Cards

Here are some of the most common types of prepaid cards that are available.

Reloadable prepaid card

A reloadable prepaid card allows you to deposit money onto the card repeatedly to increase the available balance. This type of prepaid card is a useful alternative to carrying cash if you don’t have a debit or credit card.

Gift card

A gift card is a prepaid card issued by a store or bank and intended as a gift. You can use a store gift card only at that specific store. Gift cards issued by a bank can be used anywhere that type of card (Visa, Mastercard, Discover, or American Express) is accepted. Gift cards normally aren’t reloadable. Once you’ve spent the balance on a gift card, you can’t deposit any more money onto it.

Government benefits card

A government benefits card is a prepaid card that receives government benefits, such as unemployment insurance or disability insurance. Some government agencies issue this type of prepaid card and load it with the recipient’s benefits.

Payroll card

A payroll card is a prepaid card used by an employer to pay an employee’s salary. Employers must offer at least one alternative option and can’t require that you receive your paychecks on a payroll card.

Prepaid Card Fees

Most prepaid cards charge fees, which may include:

• Activation fees

• Reload fees

• Monthly fees

• Out-of-network ATM fees

• Replacement card fees

• Foreign transaction fees

• Inactivity fees

Read the terms and conditions for the prepaid card to see its fees. If you plan to use a prepaid card regularly, compare a few options to figure out which one will cost you the least in fees.