A prepaid card, such as a reloadable gift card or a stored-value card, is a debit card. You can load it with cash and use it anywhere that accepts the MasterCard, Visa, Discover, or American Express. Here are some reasonable reasons on why you might need to think about getting one.
Prepaid Cards and How They Work
Prepaid debit cards are available at supermarkets, convenience stores, and a variety of other locations. These can be obtained through the firms that issue them directly. There is no credit check required to obtain one because there is no credit involved. You may only use the money that you have put on your card.
A bad credit history will not prevent you from getting a prepaid card. Possessing one will not help you improve your credit score. (A standard debit card doesn’t either because debit card spending isn’t reported to the credit bureaus.) You can add and stack money onto your card at an ATM, a partnering store, or by direct deposit. Prepaid cards come with account and routing codes. This allows you to have your paycheck or government benefits deposited directly into your account.
After that, you can use your card just like any other debit or credit card. You can buy things in stores and online, pay bills, and get cash from an ATM. Many organizations that sell these cards have apps that you may use to check your balance. These can be also used to analyze transactions, and transfer money. You can reload the card with new funds when your balance runs out or whenever you choose. A prepaid debit card, unlike a standard debit card, does not require a bank account.
As a result, people who can’t or don’t want a traditional bank account but need an alternative to paying with cash frequently utilize these cards. With cashless purchases growing more common, it’s tough to avoid carrying a credit or debit card these days.
Prepaid Cards Have Their Benefits
Prepaid cards work in plethora of ways, like a traditional debit or credit card. They have several advantages over those and other types of payment. Because you can’t spend more than the amount you’ve already placed, prepaid cards can help you keep out of debt. They can also be used to create a budget. Even if you have a bank account, you might put a set amount on a prepaid card each month for specific areas of spending, such as dining out.
When your monthly allotment runs out, that’s it till the next month. Banks have no trouble hitting them with exorbitant fees when customers overdraw a checking account. According to the research firm Moebs Services, the average overdraft fee countrywide last year exceeded $33 per transaction. Some banks allow you to disable overdraft protection. This is in which case your debit card will simply be declined if you don’t have enough money to cover a transaction. Still, it may be much easier to buy one of the many prepaid cards that don’t charge these fees at all.
Bonus Read : No Annual Fee Credit Cards – 2022 February Edition.
An Extra Layer of Safety
Even if you are a victim of fraud, you cannot lose more than the balance on your prepaid card. If you use a personal debit card instead, you’re probably covered by the card’s liability protection. Still, some people choose to use a prepaid card instead of risking their whole checking account when making an online or in-store transaction.
As of April 2019, prepaid cards are regulated by the Electronic Funds Transfer Act, which means that card issuers must investigate and compensate you for unauthorized charges or errors if you report them promptly. You might also be qualified for some of the card’s network’s additional protections. However, you must register your card with the issuer to receive those perks. In addition, the Federal Deposit Insurance Corporation (FDIC) insures most cards, covering amounts of up to $250,000 in the event of a bank failure (again, you need to register your card to obtain coverage). If they don’t offer FDIC protection, issuers must give notice.
Don’t leave them unpaid!
If you left your previous bank with unpaid fees, it could come back to bite you when you try to create a checking account with a new bank. Before allowing you to register an account, banks will request a bank history report, which will reveal any previous accounts that have been “closed for the cause.” Prepaid cards don’t require these checks. Thus, they’re a method to get a debit card even if all other options have been exhausted. Prepaid cards are an easy way to teach kids about money management and how to navigate an increasingly cashless market.
Some prepaid cards cater to this market, making it simple for parents to load money onto the card, such as a child’s allowance. Prepaid card issuers, like credit card issuers, may provide rewards programs. For example, the American Express Serve Cash Back card offers unlimited 1% cashback on all purchases. 2 Up to $75 a year, the Walmart MoneyCard provides 3% cashback on Walmart.com and in the Walmart app, 2% cash back at Walmart fuel stations, and 1% cash back at Walmart stores.
Prepaid Cards Have Some Drawbacks
Prepaid cards have a few drawbacks, even if they can be helpful in the right circumstances. Like other debit cards, prepaid cards don’t send transaction information to credit bureaus, so they’re useless if you’re seeking to establish a credit history or raise your credit score. In that situation, a secured credit card would be a better option. This is a unique credit card form for persons with a horrible or restricted credit history. Your bill payments will be reported to all three main credit bureaus if you use a reputable secured card. Depending on the which card you choose, you may be charged an activation fee, monthly fees, transaction fees, and reloading costs.
Additional Fees
If you don’t use your card for a prolonged period, you may be charged an inactivity fee. Expenses, of course, can quickly build up and deplete your card’s balance. Take the Green Dot Visa Debit Card with 2% Cash Back. On top of the $9.95 monthly service cost, the card contains a variety of fees, including fees for in-store purchases, up to $5.95 for reloading your balance at a register, and 50 cents for checking your balance an out-of-network ATM. With expedited delivery, replacement cards cost $5, while receiving cash from a teller costs $3.45. In 2019, the Consumer Financial Protection Bureau enacted new rules to simplify comparing prepaid card costs.
Issuers are now required to provide a fee schedule on the exterior of the card packaging and more specific information on the inside. 6 They must also provide fee information on the company’s website.
Conclusion
If you want to keep track of your spending and avoid credit card debt, or if you can’t get any other type of card, a prepaid card could be the solution. There are many alternatives available, so search for ones that are simple to use and reload without costing a fortune.
