A prepaid debit card is identical to a regular debit card in terms of how it works. The spending limit, however, is restricted to the amount of funds in the card owner's account. When funds fall below a certain limit, the card owner must deposit more funds into the account. The debit card is useful for students, people on fixed incomes and even businesses attempting to better control travel and entertainment expenses.
Card Benefits
Prepaid debit cards are offered by both Visa and MasterCard and carry the logo of one or the other on the card face. Consequently, they are accepted at ATM machines and to purchase goods and services wherever Visa and MasterCard are accepted. Since card use is not a credit transaction, users do not incur interest charges on purchases. The cards are easily acquired because they do not require a credit check, making them well suited for people with credit issues. It is impossible to go into debt with a prepaid debit card because card use is limited to the amount of funds in the card owner's account.
Secured Credit Card
The prepaid debit card is different from the prepaid credit card. The latter, also referred to as a secured credit card, is a credit card that offers hardly any credit. Whatever credit is offered is secured by the card owner's money that is held by the card issuer as security. Since the secured card is a credit card, its use also incurs interest charges, monthly fees and over-limit fees. The fees and interest rates, however, are usually much higher than with regular credit cards. This is because secured credit cards are a form of sub-prime lending.
Secured credit cards can appeal to people who want to re-establish their credit. A better option may be a prepaid debit card with a credit-builder feature attached. The fees, if any, for a prepaid debit card will probably be less than the secured credit card.
Reloading the Card
Money can be added to the card at the retail location where the card was purchased, at participating locations arranged by the card issuer, through employee direct deposit of wages and online using a credit card. It is not possible to reload a prepaid card at an automated teller machine, however. The only card that can be used for making deposits at an ATM machine is a bank-issued ATM card for use at bank-owned or participating ATM machines. The prepaid debit card can be used for withdrawals from an ATM machine, however. That is the only ATM transaction permitted.
Terms and Conditions
Prepaid debit card issuers will have different fees for card use. One fee that deserves close scrutiny is the fee charged for ATM withdrawals. This fee can be excessively high depending on the card issuer. It is prudent to research different issuers' fees to get the best deal possible.
Card owner liability for fraudulent use will vary widely by issuer. Fraudulent use of any kind of debit card provides less protection for the card owner than fraudulent use of a credit card. The difference in liability between the two can be as much as $500 depending on when the card is reported lost or stolen. It is prudent to also compare the card owner liability declarations of different issuers.
Stored Value
Prepaid debit cards provide stored value. They are a safer alternative for stashing money for emergencies than under the mattress. For example, the need may arise to access a bank account for an immediate withdrawal of cash but the bank is closed, such as on the weekend or on a bank holiday.
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