Over the years, prepaid cards have become quite massive. In fact, a Pew survey revealed that prepaid card use exploded by as much as 50 percent from 2012 and 2014. Since they were first introduced, prepaid cards have evolved into one of the preferred payment methods especially for those who don’t have access to banks.
In addition, prepaid cards have also become a favourite among millennials. In fact, many see prepaid cards as the consummate alternative to the traditional bank accounts as well as other plastic cards.
How Well Do You Know Your Prepaid Cards?
If you’re like most people, it is likely that you’re considering getting a prepaid card. If you don’t know much about it, here’s your quick and comprehensive guide to one of the best financial tools now available.
What are prepaid cards?
Prepaid cards look almost identical to credit and debit cards. However, unlike the latter, prepaid cards are not linked to any bank account. They also have to be preloaded with money before they can be used. Also, unlike credit cards, you won’t be “borrowing” money from the issuer. Rather, you are using your own money, the one you preloaded in your card.
Gift cards are also classified as prepaid cards. However, gift cards are designed for one time use only. Reloadable prepaid cards on the other hand are designed for repeated use, given of course that the card has money in it. Fortunately, there are several convenient ways to reload money onto a prepaid card.
How can I use my prepaid cards?
Just like credit and debit cards, prepaid cards can also be used for merchant and online transactions. They are also often affiliated with established credit and financial networks. That means they are also accepted and honoured in establishments associated with the network.
Each time you use your prepaid card, the purchase or withdrawal amount will be deducted directly from the balance that’s available on your card. In other words, your transactions will be limited by the balance that’s available on your card.
If the amount available in the card is not sufficient to cover a certain purchase, your transaction will be declined. Suffice it to say, prepaid cards can be very beneficial budgeting allies as they won’t allow you to spend more than you can afford to. When used for ATM withdrawals, you’ll need a personal identification number (PIN).
How do prepaid cards differ from credit cards?
While both cards can be used for both ATM and purchase transactions, they have a few distinct differences. Case in point: when you have a prepaid card, you need to reload money onto your card before you can be used.
It’s the opposite when using a credit card since you don’t need to shell out any of your own money. The issuer will pay for your purchase or withdrawal first and you will pay for the purchase or withdrawal at a later date.
Transactions using a credit card are considered a loan so your credit history as well as your statement balance will be reported to major consumer credit bureaus. Transactions you do using your prepaid card will not be reported.
What do I need to consider when choosing a prepaid card?
Prior to choosing a prepaid card, it is important that you figure out how you will be using it. For example, would you prefer reloading money through reload networks or direct deposits? If for example, you prefer the former, it would be best to pick a reload network that’s easy for you to go to.
Another important thing you need to look into are the charges and fees. In line with this, you need to also identify the transactions you’ll usually do using the card. Ideally, it would be best to opt for a prepaid card that charges less for transactions you often do.