A prepaid debit card is a means of payment. As with a traditional debit card, you can use a prepaid card to make purchases online and in-person wherever the card is accepted. Prepaid cards are typically issued on the same payment networks as regular debit and credit cards, including Visa, Mastercard, American Express, and Discover.
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Many prepaid debit cards allow you to create sub-accounts, so you can provide cards to other members of your family, all of which are tied to the same main account. However, many prepaid cards charge a variety of fees, including monthly fees, transaction fees, reload fees, ATM fees, and others.
You might also consider a prepaid debit card if you need some help with your budgeting. If you want to limit how much you spend for a given period on certain expenses, you can transfer money to your prepaid debit card and only use that payment method for the expense category. Some prepaid cards even allow you to set up multiple cards for different budget categories.
Such prepaid cards have grown in popularity in the wake of the credit crisis that left millions of Americans outside the traditional banking system. Yet consumer advocates warn that issuers of prepaid cards do not always explain the fees or rules associated with their products. Some of those products, the advocates argue, are used to prey on the financially vulnerable.
They can use the card to withdraw cash from a network of 22,000 ATMs and can use it where American Express cards are accepted, Wal-Mart officials said. The card would carry fraud protections similar to those with traditional credit card products and, officials argued, would be more transparent than other prepaid cards.
Consumers have been hit with a flurry of fee hikes as banks try to offset the loss of revenue from a government-imposed cap on debit card transaction fees. The average monthly service fee on checking accounts, for instance, topped $5.48 in September, up 25 percent from the prior year, according to Bankrate.com.
Prepaid cards are a relatively simple way for you to pay for purchases without opening a credit card or bank account. They work similar to a debit card in that you can use a prepaid card to pay bills, set up direct deposit and use mobile check deposit. You'll even receive the same $250,000 FDIC insurance that protects your deposits if your bank fails.
One reason to opt for a prepaid card over other forms of plastic is that it's a relatively low-risk way to manage your money. Parents can use prepaid cards as a way to teach their kids about money before making them an authorized user on their credit card. And if you struggle to stick to a budget, you can use a prepaid card to help monitor your spending, with the goal of eventually graduating to a credit or debit card.
If you're interested in opening a prepaid card, there are wide variety to choose from. To help make the process easier, Select rounded up the best prepaid cards, and below we've broken down everything you need to know before you sign up. (See our methodology for more information on how we chose the cards.)
Similar to a gift card, you add value to the prepaid card before you can use it, which is essentially like prepaying for future purchases. But prepaid cards come with a few more bells and whistles, like the ability to set up direct deposit and check your balance on a mobile app. They also require more attention since you can incur fees for simply having a card or reloading it with more cash.
Prepaid cards can be used to make purchases and pay bills, just like debit or credit cards. They are accepted nearly everywhere since they are often backed by a major card network, such as Visa, Mastercard or American Express.
One 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 $200 to your prepaid card, you can only spend up to $200. Any purchases you attempt to make exceeding $200 will be declined until you load more money onto your card.
Additionally, there's often a cap on how much money you can have on your card. The cards on this list have limits ranging from $5,000 to $100,000. That said, the cap is generally pretty similar to a credit limit on a credit card.
Before you open a prepaid card, it's important to understand what fees may be associated with them. Most prepaid cards charge monthly maintenance fees around $10, which is similar to checking account fees that can cost up to $15 a month. But you may also pay a fee to open your prepaid card, typically around $5.
The PayPal Prepaid Mastercard can cost up to $4.95 to purchase the card ($0 if you get the card online) and charges you $4.95 a month to use the card. You may also incur ATM withdrawal fees of $2.50, check deposit fees ranging from $0 to 5% of the total check amount and a 4% fee on purchases made outside the U.S.
There are options out there with minimal fees. Bluebird by American Express has no card opening fee when you open an account online (otherwise it costs up to $5), no monthly fee and no foreign transaction fees.
While there's typically no minimum balance requirement, you could get stuck paying a monthly fee you regardless of your balance. Make sure you're familiar with your card's terms of service and reach out directly to your card issuer for more information.
Prepaid cards are a good option for parents who want to give their kids spending money without handing them cash that could potentially get lost. You can request a new prepaid card if it goes missing, and many card issuers allow you to lock your card to prevent unauthorized use.
Choosing a prepaid card could be a good choice for you if you have a history of overspending. A prepaid card might be a better alternative than a debit or credit card, as it can force you to stick to a budget by declining purchases that exceed the balance in your account. But make sure it makes financial sense. Even though you're saving on potential interest charges or overdraft fees, the monthly fees on a prepaid card can get very expensive, too. If you decide that using a prepaid card makes it easier for you to manage your finances, make sure to sign up for a no-fee card.
When you decide that you no longer want your prepaid card, whether that's because you're opting for credit or debit, you'll need to take some action. You can't just forget about the card because you could still incur monthly fees.
In order to cancel a prepaid card, you'll first need to withdraw all of the money currently in your account. You can typically withdraw money at an ATM, through a transfer to another account or by requesting a check. Once your balance reaches $0, you can call your card issuer to cancel your account.
To determine the best prepaid cards on the market, Select analyzed and compared 11 cards that offer benefits to individuals and families who are looking for an alternative to credit cards and debit cards to manage their money.
Keep in mind that while prepaid cards are an alternative to credit and debit, they won't help you build credit. In order to establish a credit history, you need to regularly use a credit card responsibly, paying your bills on time and in full every month. And if you want an easy way to deposit and withdraw money for daily transactions, consider opening a checking account with a linked debit card so you can avoid ATM charges.
Last year, thousands of RushCard prepaid card users lost access to their accounts, some for more than a week. Customers later sued the card issuer, which was founded by hip-hop mogul Russell Simmons and marketed its card to minorities. Last week, the company agreed to pay $19 million to as many as 300,000 customers to settle the case.
Ben Jackson, a prepaid industry analyst at Mercator Advisory Group, said outages are no more common among prepaid debit card companies than among banks or credit card issuers. But because prepaid customers often have no other payment options, outages are especially harmful.
Making wise decisions about credit is an important key to financial well-being. Whether you want to learn about credit reports, debt management, increasing your credit score or where to find the best debit or credit card for your lifestyle, LoveToKnow Credit Cards provides you with the information to help you make the best credit decisions.
Carrying the Visa logo, it is accepted anywhere that Visa is accepted, allowing customers to pay bills, sign up for direct deposit and shop online. There is a $4.94 monthly fee, which is waived when $1,000 or more is loaded in one calendar month or the cardholder takes advantage of direct deposit. It requires no credit check or checking account, eliminating some of the barriers non-bankers shy away from.
According to a Federal Reserve study, 74.9 percent of families have a credit card. Of the remaining households, 5.6 percent felt that minimum balance requirements were too high and 14.4 percent said that they did not have enough money to open an account. While 22.6 percent of non-banking families reported that they didn't like dealing with banks, the top reason for not having a bank account was that 27.9 percent simply don't write enough checks.
To help alleviate some of these deterrent, Wal-Mart has added already extensive financial services with this MoneyCard. Before the prepaid card was the ability to cash checks, make money orders and transfers, pay bills, apply for a credit cards and request credit reports.
In a news release, Wal-Mart called the card a "life changer," but it could be more of an industry changer, as the company grows into the banking industry. American Bankers Association spokesman John Hall said the financial services that Wal-Mart supplies is competing not with large bank companies, but rather with check-cashing businesses.
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