The pros and cons of prepaid debit cards

What is a prepaid debit card?

A prepaid debit card, or reloadable card, is a card with a stored value that you can use to buy goods and services. Prepaid cards are backed by traditional credit companies, like Visa and Discover. However, they don’t have all the same functionality as a credit card.

The stored value is set at the time of purchase. After your purchases reach the fixed amount, you can no longer complete transactions. Prepaid debit cards may be reloadable. If so, you can return to the place you purchased your card to add additional money. The cards are available at grocery and convenience stores. When you reload a card, there may also be a reload fee, in addition to the amount you wish to add.

Turn data into insights with Excel

Make better decisions backed by data and insights

Learn more

Advantages of pre-paid debit cards

• Convenience: Prepaid debit cards are easily accessible at your nearest grocery or convenience store. You choose your amount, load the card, check out, and you’re done! You can complete whatever transactions you need, as long as you don’t go over your limit.
• Security: Prepaid debit cards are a secure method to complete your transactions. When you register your card, your provider is required to offer provisions if your card is lost or stolen.
• Control your spending: If you’re struggling to manage your card spending, a prepaid debit card is a great alternative to a debit or credit card. You can load the card for a certain amount, and you aren’t able to go over it. You can also track your spending through an app, online, or by calling your card provider. If you are struggling to manage your credit card spending, learn tips to get rid of your credit card debt.
• You don’t have to worry about your credit: Prepaid debit cards don’t inquire about your credit, so there is no risk involved. If your credit score is low, this might be a great option to help you manage your money. If you’re struggling with poor credit, learn how to improve your credit score.

Disadvantages of prepaid debit cards

• They don’t help you build credit: Although pre-paid debit cards are an easy way to help you manage your money, they don’t help you build credit. If used effectively, credit cards are a better option, but may be difficult if you have a low credit score.
• Fees: There are additional fees involved with using and purchasing a prepaid debit card, which may make them more expensive than a traditional debit card. Prepaid debit cards may have additional fees associated with ATM withdrawals, card replacement, direct deposit, inactivity, card cancellation, paper statements, and card reloading. Call the provider of the prepaid card prior to purchasing to confirm any additional fees.
• Policies on charges: Depending on your card provider, the prepaid debit card may not work for certain transactions. Direct deposit, bill pay, and other services may not be available.
• No interest: Unlike a traditional bank account, pre-paid debit cards do not accrue interest. If you are seeking a way to grow your money in a secure account, you may want to explore other options like a high-yield savings account, certificate of deposit, or bonds.

Prepaid debit cards are a convenient way to manage your spending, but also have their disadvantages. To find ways to manage your money, learn more budgeting tips.