What are prepaid debit cards
In essence, a prepaid debit card looks and operates like a normal debit card in the sense it can be used to pay for goods without cash. However, there is one key difference. A prepaid debit card is not directly linked to a traditional checking account. To fund the card you can top up generally via bank transfer. Once topped up you can spend as you would with a traditional debit card.
In this article we aim to explain everything you need to know about obtaining and using the best prepaid debit card that will suit your needs.
Credit cards aren’t the same as prepaid debit cards
Many people use the term credit card, for all types of payment card. This is not correct. There are several key differences between credit cards and debit cards. The main difference is that on a prepaid debit card, you can only load and spend your own money. This means no debt or repaying balances with interest. You simply, top up your card and spend. This is particularly attractive to people who want to avoid getting into debt, control their budgeting or want the benefits of a checking account without the hassle and fees associated with this type of service.
How do I get a prepaid debit card?
Order a card
There are an abundance of prepaid cards all with their own set of features that are available to order online. The sign up and order process is generally a lot easier than opening a current account at a bank. Usually, you fill out a form with your basic details and the card is sent via post. Sometimes there may be a delivery charge or admin fee but this is usually a one off low fee.
Top up your prepaid debit card
The method of top up will vary depending on which card you are using. Generally speaking, you can top up pre-paid debit cards in Post Offices, Newsagents and Supermarkets. On some cards you can simply top up via your bank account using transfer or card. It is even possible with some prepaid cards to have your wage/salary paid directly to you via bank transfer.
Spending using a prepaid debit card
Once you have money added to the card balance, you can start to spend. This works in the same way as any other credit or debit card. You will need to make sure that the store accepts Mastercard or VISA. Also, if you want to use contactless ensure you sign up to a service that issues contactless cards. Although contactless is pretty much standard in most of Europe, some pre paid providers are still slightly behind with updating their cards.
Managing your money
Generally, you will have access to your account information and statements online. Some of the more popular prepaid debit card providers may have a mobile app. This means you can manage your money easily while on the move, as long as you have access to an Internet connection.
Key benefits of prepaid cards
There are many reasons why people opt to use a prepaid debit card to manage their spending. Let’s take a look at the main reasons below.
People with poor credit scores can open an account and enjoy the basic functions of a checking account without any credit check on application. A prepaid card eliminates this worry and allows people to spend their money more responsibly without the risk of doing further damage to their credit rating. On the other hand, a prepaid card will not contribute positively to a credit score and cannot be used to repair bad credit.
No bank account needed
For many reasons, people may not want to have a traditional bank account. This could be due to fees, privacy issues and a whole host of other reasons. A prepaid card service provides a great solution for people who still want to use a debit card but with more freedom. Top ups can usually be made via cash making this attractive to people who get paid in cash and want to deposit manually.
No danger of incurring overdraft fees
With traditional checking accounts, more often than not, they will offer some type of overdraft facility. This means that when the balance exceeds the available balance fees are applied. This can be potentially dangerous if the customer is not on top of their finances. Overdraft fees can quickly multiply leaving the person in debt. By using a prepaid debit card, people can eliminate this risk and prevent themselves from living beyond their means.
Security of prepaid debit cards
Cash loadable debit cards are proving to be very popular for people who want to put aside some money for a specific purpose. For example if you are planning a trip or holiday you may wish to allocate some money towards spending. The benefit of transferring this to a prepaid card means that it is entirely sperate from your normal bank account. This mitigates the risk of overspending and also keeps money separate in the even that the card is lost or stolen.
Many parents are also seeking prepaid cards as a solution to manage and keep their children’s spending money safe. In fact, this is maybe one of the most popular uses for these type of cards. Most services require the customer to be 18+ but there are some services that are specifically designed for younger age groups of 14+.
Some downsides of prepaid cards
Although the negative aspects of prepaid cards are minimal. Let’s take a look at some of the common pitfalls.
Some prepaid cards have fees associated with activity on the account. It is very important that you are familiar with the fees before using the prepaid debit card.
Some prepaid debit card providers will charge a delivery fee if ordered online or a one time set up fee. These fees are pretty standard practice across most reputable providers and don’t usually amount to more than a few pounds.
It’s worth noting that sometimes a card issuer will charger a monthly fee just for having an account. Thankfully there are an abundance of cards without a monthly fee but generally if you want a card with more features then you should expect to pay a small fee every month.
Card companies have to make money somehow. The most common way is to charge a small fee when topping up your account. Most pre paid debit cards will have some kind of top fee. This could be a flat percentage no matter what the top up amount or a tiered amount depending on how much you add to the card.
It is worth spending some time researching if your card will charge you to withdraw money from an ATM. If you will mostly be using your card for spending in shops etc then this is not too much of an issue. However, if you plan to draw money from a cash point then you should look for a pre-paid debit card that has no fees or the smallest fees for the amount of money you think you will need to withdraw.
Balance Check Fees
This is perhaps one of the most annoying charges that some pre-paid card providers will enforce. Basically, this is where you are charged to find out the current balance of your account. We recommend you try to stay clear of these cards unless it is the only viable option.
Things to look out for when deciding on a pre paid debit card
Tools and account features
First off, you should decide what and where the card will be mostly used. For example, are you mostly going to use your card to shop online or in stores? Will you need a facility to pay bills or receive payments? These things are important to consider as the features of some cards vary massively.
Costs and fees
As already mentioned, most cards will have fees and costs added somewhere. Ensure you are aware of these, especially ones like statement lookup fees and balance enquiry fees which are in our opinion, unfair.
Top Up Methods
Not all cards allow direct deposit. It’s worth noting that you may have to visit a physical location in some cases, to load cash onto your account. If this is the only viable option, then that’s fine, but be prepared to travel some distance to top up.
Withdrawing your money
Finally, you should find out how easy it is to withdraw your cash from your account in the event you want to cancel the service or withdraw cash from an ATM to spend. Either way, there will mostly likely be a fee to do so.
To conclude, we think pre paid debit cards do serve a purpose for people wanting to separate their spending money, avoid getting into debt or to give to children/teenagers. Over the past few years, pre paid debit cards have gained a lot of popularity by travellers and everyday spenders alike. The only advice we would give, is to check and understand the fees before signing up. Other than that, they are a great way to control spending and stick to budgets while having the same kind of access as a bank issued debit card.