The Difference in Debit Cards & Prepaid Credit Cards

Just like a credit card, you can use a debit card or a prepaid credit card to buy services. However, with debit cards and prepaid cards you do not pay interest on charges made with the card. In some cases, this makes debit and prepaid credit cards an attractive, less costly alternative than a traditional credit card. The primary difference between debit or prepaid cards and traditional credit cards is that debit and prepaid cards require you to deposit money into an account prior to use.

Debit Cards

Banks link your debit card to your checking or savings account. Therefore, when you buy something with a debit card, the bank withdraws the money from your checking account. Instead of signing a receipt and showing a photo ID to the seller, you insert your personal identification number to complete the payment. You can use debit cards in many countries around the world. Today, you can also use many debit cards on either the Visa or MasterCard network. Cards with this feature effectively become prepaid credit cards. However, banks still deduct the funds to pay for these Visa or MasterCard transactions from your checking or savings account.

Prepaid Credit Cards

Prepaid credit cards, also known as secured credit cards, are linked to a prepaid account. Before you can use the prepaid account, you deposit a certain amount of money into it. Every time you purchase something, the prepaid credit card issuer will deduct the money for the transaction from your prepaid account. As with traditional credit cards, when buying an item, you have to sign a receipt. Prepaid credit card issuers in many cases charge a monthly fee and a separate transaction fee for every charge made.

Debit Card Advantages

Debit cards allow you to avoid carrying cash or a checkbook. Furthermore, by using a debit card, you will not need to carry traveler checks while staying abroad, because you can pay with debit cards in many countries around the world. Additionally, sellers sometimes will not accept checks, but they will accept debit cards. Finally, many merchants allow you to return merchandise and receive a credit back to your debit card.

Prepaid Credit Card Advantages

Prepaid credit cards can help you avoid getting into debt. Additionally, federal law limits your liability for unauthorized transactions made on a prepaid credit card. Generally, sellers who accept credit cards will also take prepaid credit cards. In some cases, you can also use prepaid cards to help you rebuild your credit history. Not all prepaid credit card issuers report to the credit bureaus, so if you want to use the card to build credit, make sure your credit card issuer reports to the credit bureaus.