Prepaid Debit Cards – How They Work and Why People Use Them

by | Feb 10, 2022 | Billsaver, Understanding Credit Cards

How Do Prepaid Cards Work?

A prepaid card is one that you load with money. You get a card, and you deposit as much money into your account as you want. Once money is loaded on the card, which is usually backed by Visa, MasterCard, Discover or another card issuer, it can be used just like a credit card.

Unless your card carries fees, you will not receive a bill for your prepaid card. Common prepaid card fees include monthly usage fees and ATM withdrawal fees. These fees will be deducted from any deposits that you make. For example, if you deposit $500 onto your card, and owe a $25 annual fee, your balance available for purchases will be $475. It is a good idea to compare prepaid cards to make sure you are opting for one with the lowest fees.

Why Do People Choose Prepaid?

There are a number of reasons why consumers opt for prepaid cards, including:

  • Unbanked Americans. Approximately 7% of Americans do not have bank accounts, and prepaid cards allow them to shop online and make other purchases without carrying cash.
  • Pay. Some businesses now pay their employees with prepaid cards, because they can directly deposit funds onto the cards. This saves employers money because they do not have to issue paper checks, and employees get paid faster.
  • Security. Some people worry about putting their bank account or credit card information online. Since you are only putting a limited amount of money on a prepaid card, you are limiting your liability in case someone steals your payment card information.
  • Creating Good Habits. Some consumers are opting for prepaid cards before making the leap to credit cards. They believe this teaches them to spend responsibly. In fact, many believe a prepaid card is a good way to teach fiscal responsibility to teens and younger adults without the risks associated with debit and credit cards.
  • Money Management. Budgeting is easy with a prepaid card, because you can load only the amount of money you are able to spend, and you will not have money left to spend irresponsibly. Since you can monitor your account online, you can also keep track of your expenses.
  • Gifts. While gift cards can only be used in certain locations, prepaid cards can be used anywhere. This gives the recipient more freedom in choosing their gift.

People have their own reasons for choosing prepaid cards, but convenience seems to be at the root, as they are easier to use than cash or checks.

Finding the Right Prepaid Card

Choosing the right card is important, so you will want to consider the following:

  • Loading amount limits
  • Direct deposit capabilities
  • Fees, which can include annual, transaction, monthly, cash advance, application, processing and overdraft fees.

Prepaid cards are available to everyone–no matter your credit history. As long as you have cash to load on to the card, you can use it.