Prepaid Card 101: Understanding Prepaid Cards

The best prepaid cards are so similar in a lot of ways to debit and credit cards that many people often mistake one for the other. However, unlike credit or debit cards, the best prepaid cards are not linked to savings or checking accounts.  

Before prepaid cards can be used, money needs to be loaded on the card first. When used for purchase transactions or ATM withdrawals, the money is immediately deducted from the balance that’s available on the card. Once all the balance in the card has been depleted, cardholders have the option to load money on the card anytime they want.

For many, prepaid cards are considered the best alternative to cash, with the money loaded on the card in advance before it can be used. Many people also view prepaid cards as the consummate option for those who are unbanked or those who have poor credit history or no credit history yet.

Understanding Prepaid Cards

In a way, having a prepaid card is very similar to carrying actual cash minus all the risks involved. In other words, you need not worry about misplacing or having your money stolen since they are safely kept in your prepaid card.

If you’ve heard of prepaid cards but not familiar with how they are used, you’d surely find this article of massive value. Below are some prepaid card basics you need to know:

Regardless if you’re a teenager trying to learn great money management skills or someone with bad credit, you’d benefit from using a prepaid card. With a prepaid card, you can practice responsible spending habits as you go along.

As mentioned earlier, using a prepaid card is one of the best ways to carry money around wherever you go. With your money safely credited to your prepaid card, you won’t have to worry about losing your money or having shady people steal them from you.

Just like other plastic cards, prepaid cards can also be used for purchase transactions and ATM withdrawals. What’s even better is they can also be used for online transactions. That means you can easily purchase whatever it is that you want without having to leave the comforts of your home or office.

Those who are looking for ways to curb overspending or stick to a budget, a prepaid card can be a truly beneficial ally. Unlike credit cards, prepaid cards don’t come with credit capabilities. In other words, as soon as the balance on the card has been depleted, the spending also stops automatically.

Fortunately, you can use the card right away as soon as money has been successfully loaded onto it. Loading money on your prepaid card is both easy and straightforward. For instance, you can load money onto your card through secure online portals.

Prepaid Card Upsides

Why do people love prepaid cards? Primarily because they come with the following enticing benefits:

Security. Aside from keeping your money safe, prepaid cards can also be ideal for online transactions. While it would be great to be able to use your card for online purchases, what makes prepaid cards even better is they won’t put any of your personal details at risk even if you do online transactions.

Habit forming. Some people prefer to practice with their prepaid cards prior to using credit or debit cards. Undeniably, since prepaid cards don’t come with credit capabilities, it’s easy for you to develop responsible spending habits.

Card for the unbanked. As mentioned earlier, people who don’t have access to banks for one reason or another have a great alternative in prepaid cards. What’s even wonderful is you can easily obtain one without going through all those time-consuming and stressful bank applications.

Choosing The Best Prepaid Card: Key Things You Should Consider

Over the years, the best prepaid cards have experienced a massive growth explosion. In fact, a Pew survey indicated that usage of prepaid cards rose by as much as 50 percent between 2012 and 2014.

Since they were first introduced, thebest prepaid cards have evolved into a convenient payment method for those who don’t have access to banks. It has also become a great alternative to traditional bank accounts among millennials.

What are prepaid cards?

Prepaid cards look very similar to debit and credit cards. However, unlike debit cards, it is not connected to any bank account and it needs to be preloaded with money before it can be used. Also, unlike credit cards, you will not be “borrowing” money from the issuer. Instead, you will be using your very own money, the one you preloaded in the card.

Gift cards are also considered prepaid cards. However, they are only designed for one time use. Reloadable prepaid cards on the other hand are designed for continuous use, given of course that there is money available on the card. The good thing is there are several convenient ways to load money onto the prepaid card.

How are prepaid cards used?

Prepaid cards can be used for merchant as well as online purchases. Oftentimes, prepaid cards are also affiliated with established payment networks. That being said, the cards are often honoured and accepted in places associated with he payment networks.

Each time the prepaid card is used, the amount of the purchase or withdrawal will be deducted from the balance that’s available on the card. In other words, you can’t spend more than the amount that’s available in the card. If the amount available is not sufficient to cover the expenses, the transaction will be declined.

Unknown to many, prepaid cards can also be used for ATM withdrawals and not just purchase transactions. To use the prepaid card for ATM withdrawals, a personal identification number (PIN) is needed.

How are prepaid cards different from credit cards?

While both cards can be used for purchase transactions and ATM withdrawals, they have several distinct differences. For instance, a prepaid card will require users to preload money on the account before it can be used while a credit card will allow you to “borrow” money for purchase transactions which you need to repay at an agreed time.

Since credit cards are considered a loan, the statement balance and the credit history are reported to major consumer credit bureaus. Transactions using the prepaid card on the other hand will not be reported.

What key things should you consider when choosing a prepaid card?

When looking for a prepaid card, you need to first identify how you will use it. For instance, do you intend to reload it through direct deposits or through reload networks? If you pick the latter, then it would be wise to pick a card with a reload network that’s convenient for you to go to. When choosing a prepaid card, you also need to consider if you’re going to use it for online payments and ATM withdrawals.

Another key thing you need to look into is the fees and charges. In line with this, you also need to consider how you intend to use the card. Understandably, you’d want to keep your fee payments to a minimum. That being said, look for prepaid cards that will charge you less for transactions you frequently do.

For instance, if you intend to use your cards for ATM withdrawals, consider it best to opt for a prepaid card that waives ATM fees when the cards are used at certain networks. Other prepaid card issuers will also waive monthly fees for cardholders who load a specific amount monthly.