Prepaid debit cards are becoming increasingly popular financial products. With a prepaid card, you load money onto an account associated with a card. The card works like a credit card in that you swipe at a terminal to make payment. However, unlike a credit card, you are using your own money when you use a prepaid debit card. The purchase amount is deducted from the balance you have on your card. Once you run out of money on the card, you are required to add more funds if you want to keep spending.
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Prepaid debit cards are becoming increasing popular among the unbanked. These cards allow those without bank accounts (and who might not qualify for bank accounts) access some of the same conveniences. Most prepaid cards allow you to arrange direct deposit for your paycheck, and it makes it easy to make purchases online and offline without the need for cash.
Prepaid debit cards are normally accepted anywhere that credit cards bearing the same logos are accepted. This brings the convenience of plastic, but keeps the consumer from paying interest. It’s also possible to arrange for online bill pay and automatic withdrawals when you have a prepaid debit card. For many, a prepaid debit card functions much like a checking account.
It is important to note, though, that prepaid debit cards are not the same as credit cards. Using a prepaid debit card will not improve your credit score.
You should also realize that prepaid debit cards often come with an array of fees that can sap your funds. Many cards have activation fees, as well as monthly fees. You might also be charged just for checking your balance at an ATM, or even for reloading your card. For the unbanked, paying a fee of $4.95 per month is still cheaper than getting a “second chance” checking account that might charge as much as $9 or more a month.
Before you choose a prepaid debit card, it’s important to understand the costs involved. For many consumers, it is more cost-effective to open a free checking account at a bank or credit union.
However, the increasing popularity of prepaid debit cards, especially as a way for parents to manage their kids’ allowances, has led to some cards that aren’t downright terrible.
The best prepaid debit cards won’t charge you a monthly fee. Or, if you are charged a fee, the best cards will waive it if you complete certain actions. Also, look at the card’s list of fees before signing up. Try to use a prepaid card with fewer fees.
Some of the better choices include:
For more options, please check our list of prepaid debit cards.