Prepaid cards and debit cards are both widely accepted at merchants worldwide,but one is preloaded and the other is not.
Debit cards arelinked to a checking account,while prepaid cards aren’t and instead require you to load money onto the card.
Neither card helps you build credit, but despite this drawback, both prepaid cards and debit cards can help you manage your money in different ways.
If you’re considering which type of card to use, reviewhow each card works and look for any associated fees. To help you make an informed decision, here’s a breakdown of how prepaid cards and debit cards work.
What is a prepaid card?
When you check out at the supermarket, you'll often see an array of gift cards for purchase, and there may also be prepaid cards for sale.Like a gift card, you add value to the prepaid card before you can use it.
You can use a prepaid card to make purchases and pay bills, just like debit cards. Prepaid cards are accepted nearly everywhere debit cards are since they are often backed by a major card network, such as Mastercard or American Express. (However, they don't help you build credit.)
The obvious disadvantage of using a prepaid card is that you can only complete transactions up to the amount you have loaded onto it. If you add $100 to your prepaid debit card, you can only spend up to $100. Anything greater will be declined until you add more money to your card.
That said, you may want to use a prepaid card over a debit or credit card if you have a history of overspending. Giving yourself a tangible limit (the money you load onto the card) is a good way to help you stick to your budget.
And if you're a parent looking to teach their kid how to manage money, a prepaid card can be a good starting point. Some prepaid cards likeBluebird by American Expresshave family accounts, which allow primary account holders to set limits on spending and restrict ATM access.
Like most financial products, prepaid cards charge fees including: card opening fee, monthly usage fee, ATM fee, reload fee and foreign transaction fee. For instance, the PayPal Prepaid Mastercard® charges you $4.95 a month to use the card. However, you can find prepaid cards that have minimal fees, such as Bluebird by American Express, which has no card opening fee when you open an account online and no monthly fee.
What is a debit card?
A debit card is linked to a checking account and provides quick and easy access to your money. You can use a debit card to make new purchases, pay bills and withdraw cash from an ATM, bank or credit union.
Debit cards work similarly to cash, where youcan’t spend more money than you have in your account unless you’re enrolled in overdraft protection. When you complete a transaction with a debit card, the money is automatically deducted from your checking account. So a $50 purchase would reduce your checking account balance by $50.
No matter which debit card you have, you can track how much money you deposit and withdraw each month by looking at your monthly statements. Debit cards might not help your credit, but they can help you create a budget.
Debit cards themselves typically don’t have fees, but the linked checking account can come with a variety of fees, including: monthly account maintenance fees (if minimum balance requirements aren’t met), ATM fees, foreign transaction fees and overdraft fees.
If you want fee-free access to your money, consider using a no-fee checking account, such as the Capital One 360 Checking® Account, which has no monthly fees whatsoever.
Most debit cards are relatively basic, meaning you won’t earn rewards like a credit card. However, the Discover® Cashback Debit Checking provides 1% cash back on up to $3,000 in debit card purchases each month.
Discover® Bank is a Member FDIC.
Monthly maintenance fee
$0
Minimum deposit to open
$0
Minimum balance
None
Rewards
1% cash back on up to $3,000 in debit card purchases each month. See website for details by clicking "Learn More".
Free ATM network
60,000+ Allpoint® and MoneyPass® ATMs
ATM fee reimbursem*nt
None
Overdraft fee
$0
Mobile check deposit
Yes
Terms apply.
Bottom line
Prepaid cards and debit cards can both be used to make purchases, but the best choice for you depends on what you want to get out of the card.
Prepaid cards can be a good option if you don't have a checking account.Parents who want to give their kids a limited amount of money can also opt for prepaid cards.
Debit cards can be a good choice for anyone with a checking account since they provide easy access to your money and don’t need to be reloaded.
However, if your goal is to build credit, neither of these cards are the right choice. You may want to consider opening a credit card that can help you establish and improve your credit score. The best credit cards offer rewards, intro 0% APR financing and other money-saving perks that make paying with a credit card worthwhile.
Don't miss:
- What is an excellent credit score and how to get one
- What to look for when you review your credit report
- Why your credit score differs and which one matters
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
A prepaid card is not linked to a bank or credit union account. Instead, you put money into the card account, sometimes called loading money onto the card, before you can spend it. With a debit card, you are spending money you have in your bank or credit union account.
What is the difference between a prepaid card and a debit card? ›
What is the difference between a prepaid card, a credit card, and a debit card? Unlike a debit card, a prepaid card is not linked to a bank account. Generally, when you use a prepaid card, you are spending money that you have already loaded onto the card.
What is a disadvantage of a prepaid card? ›
Here are a few of the disadvantages of a prepaid debit card: Card is not linked to a personal banking account, meaning there is no interest earned. Losing money due to inactivity. Prone to being charged for several miscellaneous fees.
Why are prepaid cards not accepted? ›
Prepaid cards can be declined because you don't have sufficient funds in your account, the card hasn't been activated, the merchant doesn't accept the network's cards, or you have exceeded your spending limits. Any information you provide to the merchant must also match what's on file with the prepaid card issuer.
What is not a good reason to get a prepaid debit card? ›
You can't build credit with them and the money you load onto them won't earn interest. And many prepaid cards lack standard banking services, such as a way to withdraw or reload cash for free.
Why would someone use a prepaid card? ›
Prepaid cards are financial tools that can offer can many benefits for budget management, travel and secure transactions without the need for a traditional bank account or credit check. They provide a sense of financial control and inclusion, particularly for the unbanked and those looking to structure their spending.
Can I withdraw money from prepaid card? ›
Prepaid cards work in much the same way as any standard debit card. You are issued a PIN which allows you to withdraw cash from ATMs. While many ATMs are free to withdraw from, some may charge a fee for withdrawals though no matter what kind of bank card you use.
Why do you want to avoid prepaid cards? ›
Most prepaid cards charge costly fees that can include a transaction fee for every time you use the card. Other fees to look out for include annual or monthly maintenance fees, cash reload fees, inactivity fees, foreign transaction fees, balance inquiry fees and more. Won't help build credit.
What should you be careful of with prepaid cards? ›
There are only a few downsides to using prepaid cards, but they are significant. Prepaid cards come with fees. Cardholders may have a lot of fees, including activation fees, transaction fees, ATM withdrawal fees, reloading fees, monthly fees, or inactivity fees. Check the fine print on the card for fee types.
Where can you not use a prepaid card? ›
Prepaid cards cannot be used for credit card payments or car payments. You cannot split payments online so you can only spend the amount that is on your card. You should keep your prepaid cards until they expire in case you receive any refunds to your cards. Virtual cards are meant to be used online or over the phone.
Disadvantages
- Pre-paid debit cards do not help you build credit.
- Many pre-paid debit cards charge fees before you even start using them. ...
- Fees are typically hidden in fine print on the card provider's website.
- Different cards have different policies regarding the charges you can make.
Prepaid cards are extremely convenient. They can be helpful for budgeting or for gifting cash to a friend or family member. If you want to access the money, the funds can be transferred to your bank account if allowed. Just make sure to follow the instructions from your card issuer to set up the transfer.
Why does my prepaid debit card keep getting declined? ›
There isn't enough money on the card
With a prepaid card, you need to know your balance before spending to avoid declines due to low funds. For example, if you have $4.27 on your prepaid card, but try to buy a $5 item, the transaction will fail since the card balance is insufficient.
Why is debit card not recommended? ›
Debit cards are more vulnerable to fraud than credit cards, according to the Identity Theft Resource Center in California, a nonprofit consumer education organization. The reason: Account monitoring isn't as thorough for debit cards because the transactions are processed through different networks.
How much money can you put on a prepaid debit card? ›
Some prepaid debit cards let you load up to $15,000 onto your card, while others may have a lower maximum amount. For example, the Regions Now Card has a $7,500 balance limit. You can find the maximum limit on your prepaid debit card by reading your card's terms and conditions.
What is the best prepaid debit card to use? ›
Best Prepaid Debit Cards of 2024
- Best Overall, Best for No Monthly Fee: Bluebird by American Express.
- Best for Cash Reloads: American Express Serve FREE Reloads.
- Best for Walmart Shoppers: Walmart MoneyCard.
- Best for Rewards: American Express Serve Cash Back.
- Best for Tweens/Teens: FamZoo Prepaid Debit Card.
A prepaid debit card is much like a gift card: It allows you to spend whatever amount of money is stored on the card. You can reload the card online or at an ATM, a participating store, or another physical location when the balance is used up.
How do prepaid cards work? ›
A prepaid card is a card you can use to pay for things. You buy a card with money loaded on it. Then you can use the card to spend up to that amount. A prepaid card is also called a prepaid debit card, or a stored-value card.
Are prepaid cards accepted everywhere? ›
Most prepaid cards have a network logo (Visa, MasterCard, American Express, or Discover) and can be used anywhere that brand is accepted. Some examples include grocery stores, department stores, gas stations, hotels, and for online shopping. Prepaid cards can also usually be used for purchases over the phone.
How much money can you put on a prepaid Visa card? ›
Some prepaid debit cards let you load up to $15,000 onto your card, while others may have a lower maximum amount. For example, the Regions Now Card has a $7,500 balance limit. You can find the maximum limit on your prepaid debit card by reading your card's terms and conditions.
