Should You Get a Prepaid Debit Card?


credit card advice

Alexandra Leslie
By: Alexandra Leslie
Posted: June 26, 2015
Our personal finance experts dish out the most trusted credit card advice on the web, including juicy tips, tricks and secrets from inside the credit card industry.

Many people still say cash is king, but a cash-only life is difficult and unrealistic.

What if you want to pay your bills online, take advantage of online shopping or buy your movie ticket in advance?

Prepaid debit cards exist as a convenient alternative to cash, allowing you to make everyday purchases with plastic. Plus, the sign-up process is simple and hassle free.

What is a prepaid debit card?

With a prepaid debit card, you load funds and then use the card to spend that money. You are not spending borrowed credit like a credit card but actual money you added to the card.

Traditional debit cards are linked to a checking account at a bank.

Prepaid cards are different because they aren’t linked to a checking account — you load funds directly on to the card. With a traditional debit card, you can spend over your limit, though you will pay an overdraft fee.

“You can’t spend more than the

amount currently on the card.”

What are the benefits?

Prepaid debit cards have some benefits:

  • Unlike a credit card, you don’t have to apply and get a credit check — anyone can qualify, so your existing credit isn’t an issue.
  • It can be used anywhere regular debit cards are accepted. For example, if it is a Visa card, it is accepted anywhere regular Visa debit and credit cards are accepted.
  • The card gives you the benefits of a bank account without needing to actually have one.
  • The Consumer Finance Protection Bureau recently began pursuing new consumer protections for prepaid cards.

What are the negatives?

Prepaid debit cards don’t come without issues:

  • Prepaid debit cards will not help you build credit. They exist for convenience only. If you have bad credit and need to repair it, you are better off with a secured credit card, which will report your activity to the credit bureaus and help you build good credit.
  • Some prepaid debit cards are riddled with fees. They vary from card to card, so make sure to look at the fee schedule before purchasing. Common fees include monthly fees (sometimes they are waived if you do certain activities like receive a direct deposit), ATM withdrawal fees or fees for checking your balance.
  • You may not receive the same level of protection as you would a traditional debit card if your card is lost or stolen.

Do you need one?

If you already have a checking account or have no reason not to open one, it is preferable to have a traditional debit card that links to one. However, if for some reason you prefer not to have a checking account, a prepaid debit card is a good option.