What Are Prepaid Cards And How Do They Work?

Banking Basics

If you don’t have credit because you’re new to the game, or you have bad credit because of past mistakes, you may not be able to get a traditional credit card. And millions struggle to open a traditional checking or savings account because of past challenges or a general distrust of the financial system in the United States.

In that case, a prepaid debit card may be the best way to go. But what is a prepaid card and how does it work? In this article, we’ll look at what this type of card is, how it could help your situation, and why it may or may not be the right choice.

The Best Prepaid Cards

1. Bluebird by American Express | Our Top Pick
Best for No Monthly Fee. The Bluebird by American Express is our favorite prepaid card. And for good reason. Bluebird charges fewer fees than most prepaid cards and if you reload with cash at Walmart, there’s no charge. Plus, Bluebird has a strong smartphone app to help you manage your account.

  • No fee for monthly maintenance, activation, online card purchases, overdrafts, etc.
  • Provides several perks, including purchase protection, roadside assistance, and Amex Offers
  • Access to more than 30,000 fee-free ATMs
  • You can create sub-accounts for family members—they’ll get their own card tied to the main account
  • Cash reloads at Walmart locations are free, as are direct deposit, debit card transfers, and mobile check deposits. Cash reloads at other retailers may incur a fee.

Sign up now!

2. American Express Serve FREE Reloads Prepaid Card
Best for Cash Reloads. We like the American Express Service FREE Reloads card because it is BY FAR the most attractive card for people who get paid in cash. And, like all AMEX prepaid cards, it has a solid smartphone app to manage your account.

  • No fee when you load cash onto your card at more than 45,000 Walmart, 7-Eleven, CVS, Rite Aid, Dollar General, and Family Dollar locations
  • Other free reload options include direct deposit and bank account transfers
  • Access to more than 30,000 fee-free ATMs
  • Eligible purchases get purchase protection
  • Mobile check deposits take 10 days unless you pay a fee, so be aware of that
  • There’s a $6.95 monthly fee (no fee in New York, Texas, or Vermont)

Sign up now!

3. FamZoo Prepaid Card
Best for Families. The FamZoo Prepaid Debit Card isn’t the only prepaid card that offers sub-accounts. But it provides a whole suite of features that can help parents teach their children how to manage their money. Their smartphone app is perfect for parents and tweens/teens.

  • You can order up to four prepaid cards for free and set up automatic recurring transfers (additional cards cost $2 apiece)
  • Parents can lock and unlock cards and encourage kids to save with interest paid from the parent’s account
  • You can also tie transfers to allowances and chores or even create a non-monetary rewards system
  • Access to more than 30,000 fee-free ATMs
  • You’ll pay a $5.99 monthly fee, though you can reduce it to as low as $2.50 if you pay in advance
  • The only free reload options are direct deposit and transfers from Apple Pay, PayPal, and Square Cash
  • Other options, including bank transfers, PopMoney, and cash reloads, may incur a fee

Sign up now!

4. Walmart MoneyCard Prepaid Card
Solid Cashback Card. The Walmart MoneyCard is one of the few prepaid cards that offer rewards, although there is an annual cap on them. Even if you can’t get the monthly fee waived, the annual rewards are enough to pay for it. The major downside is the fees you’ll have to pay if you need to use ATMs to get access to your cash.

  • Earn 4% cashback at Walmart.com and 2% back at Walmart stores (cash back is capped at $75 per year)
  • The standard monthly fee is $5.94, but that will be waived if you load $1,000 or more each month
  • Free cash reloads via the Walmart MoneyCard App, direct deposit, mobile check deposit, and bank transfer
  • All ATM withdrawals will incur a $2.50 fee
  • Mobile check deposit takes five days
  • One of the best mobile apps we’ve reviewed
  • No overdraft fees

Sign up now!

5. American Express Serve Cash Back Prepaid Card
Best for Rewards. Unlimited 1% cashback isn’t too impressive among credit cards, but it’s the gold standard for prepaid debit cards. The American Express Serve Cash Back charges a $7.95 monthly fee, but you can make up for it if you spend at least $795 per month with the card.

  • Offers unlimited 1% cash back on all purchases
  • Free reload options include direct deposit, bank transfers, and mobile check deposit
  • Access to more than 30,000 fee-free ATMs
  • You’ll pay a $7.95 monthly fee (no fee in New York, Texas, or Vermont)
  • Cash reloads cost up to $3.95
  • Mobile check deposits take 10 days unless you want to pay a fee
  • Strong AMEX smartphone app to manage your transactions and balances

Sign up now!

What is a Prepaid Debit Card?

In general, a prepaid debit card is a type of payment card you can use like you would a traditional credit card or debit card. They are similar to a credit card in that you don’t have to link them to a specific bank account. And they are similar to a debit card in that you need to have the money already stored on the card in order to use it.

And, like credit cards and debit cards, prepaid cards come stamped with the Visa, Mastercard, Discover, or American Express logos and can be used everywhere those cards are accepted. Which is pretty much anywhere in the world.

How to Get Your First Prepaid Debit Card

The good news is that prepaid cards are simple to get and use. You can purchase a prepaid debit card at many grocery stores, convenience stores, and even pharmacies. You could also choose to go directly (in a branch or online) to a bank or credit card company to get them. No matter how you do it, the key is that they are easy to find. And you’ll have plenty of options for different types of cards.

There are two institutions involved in the creation of your prepaid card. The first is the issuer and the second is the payments network.

An issuer is the company with which you will be dealing and the prepaid card sponsor. This can be banks like Regions Bank, PNC Bank, BB&T Bank, or Fifth Third Bank. It can also be non-traditional companies such as FamZoo, Mango, or Movo. And of course, there are recognizable companies that also offer prepaid cards such as PayPal or Walmart. Our favorite is American Express, which serves as both the card issuer and payment processor.

Choosing the right prepaid card issuer is critical. This is where you need to do your homework and compare the features, benefits, and costs offered by each issuer. When in doubt, work with a brand name you know and trust.

The second company affiliated with your prepaid card is a specific electronic payments network. The most prominent of these are Visa, Mastercard, Discover, and American Express. These are companies who process your payments, debit the money from your card, and send the money to the retailer or merchant.

Almost everyone is familiar with Visa, Mastercard, Discover, and American Express. To most people, there is little difference between them, except that Visa and Mastercard are the largest and most widely used and accepted payment networks. Because these companies have nothing to do with the fees, mobile app experience, and customer service (these responsibilities fall to the issuer) you really can’t go wrong with any of them.

Did You Know: Some people choose to have multiple prepaid cards for different purposes, such as for different parts of their budget or direct deposit from an employer and a government agency (such as WIC, social security, or child support benefits).

How Do You Load a Prepaid Card?

If you choose a prepaid card online, the specific issuer will provide detailed instructions on “loading” the card with money for the first time. This can include loading or adding funds to the card through direct deposit, mobile check capture, debit card transfer, or at a local retail partner such as Walmart. These methods are explained in more detail below.

If you pick up a prepaid card at a retailer, most of the time you will take it to the register and add money from cash or a checking account. In some cases, prepaid cards sold at retailers can be purchased for a fixed amount ($25, $50, etc.) and once you pay for it, it is preloaded with the amount of your purchase. Not all cards have a set amount on them, but take a look at the card you’re buying to make sure.

When you want to put more money onto the card, each prepaid card may have different options. Here are some of the most widely offered:

  1. Direct Deposit. This is where your paycheck is directly linked and deposited into your prepaid card account.
  2. Manual Check Deposit. We strongly suggest you get a prepaid card that has a highly touted smartphone app. This type of functionality allows you to take a photo of your check, and it is ‘deposited’ onto your card usually within 2-5 business days.
  3. Money Transfer. If you have a checking account, you should be able to load more money directly from your checking account to your prepaid card.
  4. Cash Deposit. If cash is king in your life, making this form of loading will be critical. You will need to get a prepaid card which allows you to easily and conveniently load money (in other words, at locations convenient to you) and with the least amount of fees.
Note: No matter how you choose to load your prepaid card, make sure you know how to check the balance for free. Some cards have an app, or they may give you a remaining balance when you make a purchase. Beware of checking balances at ATMs, which can charge fees for providing a balance even if there is no other transaction.

How Much Money Can You Put on a Prepaid Card?

The truth is that the maximum balance on your prepaid card will vary based on the specific card you have. In general, the lowest limit you will find is $2,500. However, you could find cards that allow up to $20,000 to be available on the card at any given time. The only way to know for sure is to look at the limits and instructions provided by the prepaid card issuer.

If you have a need for higher limits, such as cards that will be used for direct deposit checks from work or benefits checks, you’ll want to select an issuer that will cater to your needs. This is important because if you try to add more money to your card than the maximum balance allowed, the transaction will be rejected.

That’s going to be a problem.

Did You Know: American Express offers prepaid cards that have limits of $100,000, making them the most extensive balance option available.

What Are The Fees When Using A Prepaid Card?

Prepaid card issuers are required to clearly state their fees, but “clearly” can mean in the smallest font known to human-kind. Some prepaid cards will charge fees for almost anything and this practice seems nothing short of “predatory”. These cards should be avoided.

We strongly recommend reading this article from the Consumer Financial Protection Bureau (CFPB) which gives some solid information on the fee structure for most prepaid cards.

That said, the best prepaid cards have started to have a more customer-centric attitude on fees. Fees are usually structured around 4 main areas: (1) monthly maintenance fees, (2) activation fees, (3) cash reload fees, and (3) ATM fees.

If your prepaid card wants you to pay fees outside of these 4 areas, you may have chosen the wrong card.

Note: Here’s a sampling of possible charges prepaid card issuers: purchase fees, monthly fees, point-of-sale transaction fees, ATM cash-withdrawal fees, balance-inquiry fees, fees to receive a paper statement, ATM transaction-decline fees, fees to add, or “load,” funds, dormancy fees for not using your card, fees to get your remaining funds back when closing the account, and overdraft fees.

Key Takeaways

  • Do the research. Know the features and benefits of various prepaid cards to ensure they meet your needs. For example, if you plan to deposit/load a lot of cash, make sure your choice synchs up with that.
  • Choose the card issuer wisely. You want a financially sound company behind your prepaid card. A card issued by “TickyTacky LLC” should give you pause.
  • Know the fees. Some prepaid cards seemingly charge fees every time you take a breath. The fees for your prepaid card should generally be limited to 4 areas: monthly fee, activation fee, cash reload fees, and an ATM fee.

Prepaid debit cards can be an excellent choice if you’ve been unable to get a regular bank account with a conventional debit card. You might also consider one if you’re worried about going into debt with a credit card. Prepaid cards can also be useful in combination with the other two as a budgeting tool—after all, you can only spend what’s loaded onto the card.

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