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
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.
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:
- Direct Deposit. This is where your paycheck is directly linked and deposited into your prepaid card account.
- 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.
- 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.
- 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.
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.
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.
- 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.