How Do Prepaid Debit Cards Work?
Today, a new portfolio of financial instruments is available to provide a comfortable wide range of options to pay for goods or services without needing to use paper money (notes) or metallic coins in progress.
About this, a great option to make your payments while keeping good of your money is using prepaid or rechargeable cards, which allow you as a cardholder to execute payments quickly and at a decent level of security.
Furthermore, this article will talk about prepaid debit cards and let you know how this financial instrument can boost your relationship with money.
What is a prepaid debit card?
Prepaid or rechargeable debit cards are financial instruments that keep features from debit cards linked to a checking account and credit cards related to your credit score.
Yet, they are far different from both other traditional options. While they share a lot with the instruments mentioned above, especially regarding security measures, prepaid cards count with some features that make them unique and less controlled –By third parties.
Look at it this way:
- While a conventional card is linked to your bank account, a prepaid card isn’t. Although it can be connected to a digital account or e-wallet.
- While a credit card balance goes into debt, the prepaid card balance depends on funds that you charged into it previously.
- Just as credit cards have a limit (your credit), prepaid cards have a usage limit, which varies and will affect the amount of money you can pass through each month.
While this may clarify how prepaid cards work, let’s talk further about how you can use them.
How can I use my prepaid debit card?
The first thing you should know is that, despite the similarity of your prepaid card with conventional credit cards, you must have a registered balance to make transactions.
Beyond that, any debit card works the same way.
The most notorious difference between conventional cards and prepaid cards is the availability of the limit of money that can be used on them.
Because, unlike credit cards, prepaid cards consume an amount in the digital account. Furthermore, to use your prepaid credit or debit card, all you need to do is:
- Decide how much money you need on the card.
- Recharge your card (This can be done through a transfer, check, or any payment to the issuer)
- Make transactions with your prepaid card.
It should be noted that these types of cards are not the best replacement for a real credit card; however, they are quite useful for maintaining control over personal expenses.
For example, you could dedicate a prepaid card only for leisure expenses, firmly delimiting your consumption for these activities.
How do I make deposits to my prepaid card?
As we mentioned, you must make deposits to your prepaid card if you wish to complete any transaction.
In this regard, you must take into account the following considerations:
- Some cards may not be linked to a digital account.
- There is always a monthly limit to the money that can go through your card.
Besides, you will pay a commission for each recharge you make to the card. For this reason, it is vital to be sure how much you will use so that you are not constantly recharging.
On the other hand, some cards even limit the number of transactions made so you could have a maximum of monthly top-ups (i.e. the card is willing to receive money a few times a month).
There is generally no limit to making deposits. However, some cards only allow monthly recharge limits, while others have more flexible policies that allow multiple recharges without time.
You can usually recharge your card through:
- Bank transfers
- Payments to the issuer
Furthermore, as soon as the funds are part of your card’s balance, its use can be initiated. This means that you can now make payments, withdraw cash through affiliated cashiers, and control the way you use money through your card.
Moving forward, once the full amount of the paid funds has been consumed, this payment instrument will not be able to be used and will have to be charged through the exposed modalities.
When is a prepaid card useful for you?
Prepaid cards have multiple benefits derived from their functionality which may be useful in the cases described below:
If you have no or poor credit score
To opt for financial instruments, banking institutions generally request to have a nice background that makes you eligible. If you don’t have any, you are most likely to be rejected in every attempt, and a nice way to start is to go for scored prepaid cards.
About this, you should be careful to choose a card backed up by a bank since it won’t affect your credit score otherwise.
This makes prepaid cards a highly attractive product for people who do not have an acceptable credit score and need to start building a nice record.
If you need help with budget planning
Prepaid cards are an amazing tool for budget control and planning.
Different from credit cards, which can be a double-edged weapon, these require you to recharge the money designated for consumption before using them, therefore setting a clear limit to the final count.
On the other hand, this makes prepaid cards as useful as you are disciplined. Therefore, if you still go crazy placing money on your prepaid card, there is nothing it can do for your finances.
If you are looking to avoid Bank Account Fees
Prepaid cards generally represent an option similar to a checking account, yet, they usually offer fewer fees when it comes to p2p transactions if any.
In some cases, these cards tend to have lower fees per transaction when compared to bank debit cards.
If you plan to travel
When you get out of the country, your national debit card usually goes useless, while your credit cards will remain functional –especially Visa and MasterCard, which are practically universal.
Nevertheless, a prepaid card can be associated with Amex, Visa, or MasterCard –Like the ones submitted by PayPal and Payoneer, for example. These cards are useful almost anywhere and allow you to make payments and retrieve money from almost any ATM worldwide.
On the other hand, you can use a prepaid card if you want to settle a budget for your vacations or the holiday season.
If you hunt for online bonuses
Like most credit cards, prepaid cards usually come with bonuses and discounts in several stores –Especially online ones. In this regard, you can save money or get special gifts by using the right card in designated stores.
Disadvantages of prepaid cards
Despite the advantages that prepaid cards offer as a financial tool, they do count with a series of disadvantages that take them off from most people’s plans:
Poor Consumer protection
Prepaid cards usually do not have sufficiently robust mechanisms to shield or protect the consumption or data of their users.
Even so, despite most issuers do have a decent security level, you can’t compare them to a bank account. Nevertheless, few prepaid cards allow you to protect your account with 2-step verification and other methods.
Abusively high fees
While most prepaid cards shine when it comes to small transactions, unlike credit cards, they usually charge a % fee. This is OK, but when you buy 1000% in products, the 9% is A LOT!
Creating a Credit History
Most transactions carried out do not qualify to consolidate a credit history. Furthermore, what you do with a prepaid card is not always sent to the banking entities.
Absence of financing
Prepaid cards use the money paid by the holder. Nevertheless, this is not a written rule. Some prepaid cards do allow you to look for (tiny) loans.
The 3 best-prepaid debit cards for your 2020
Now that you know a bit more about prepaid debit cards let’s talk about the best ones that you can get for 2020
1. PayPal Prepaid card (MasterCard)
This card is recognized and has a high level of reliability respected by large consumers and retailers, and has a large network. Furthermore, it counts with accessible fees, and you can use it in many places.
- Charges $4.95 per month and offers unlimited purchases.
- Charges the 2.5% foreign currency fee.
- Can’t be tied to your PayPal account.
2. Walmart MoneyCard (Visa or MasterCard).
The Walmart MoneyCard offers a 3% refund at Walmart.com. Besides, money can be credited or transferred free of charge to another card provided by Green Dot Bank.
It is also possible to access the money up to two days in advance, with free direct deposit, which will depend on the policies of the payment provider.
3. Mileage Plus GO (Visa)
This Mileage prepaid card has an incredible mileage program.
This makes it an excellent option if you travel a lot. The card also has a 5% fee (The same as PayPal), which is quite nice.
You take money from a selected ATM for free.
To Sum Up
You know how prepaid debit cards work, how to use them, and the best ones to get in the next few weeks. This tool can be great if you need to keep your holiday budget tied or if you want to get some discounts –For which the Walmart card is widely recommended.