How Do Prepaid Debit Cards Differ From Bank Debit and ATM Cards?

/ BY / Credit Cards

Sometimes, cash isn't always practical. For those who prefer to carry some sort of plastic, there are plenty of different options. Prepaid debit cards are one form of payment that can be used to in lieu of cash.

What is a prepaid debit card?

A prepaid debit card is a debit card-typically with either the Mastercard, Visa, or other major credit card logo-is similar to a regular bank debit or ATM card because unlike a bank debit card, it is not linked to a checking account. Rather, you add money to your card via cash or check at specified locations, usually at Western Union locations or grocery stores. When the money runs out, you simply add more.

Prepaid debit cards also allow you to withdraw funds from the balance on your card via ATM machines.

Prepaid debit card pros and cons

Prepaid debit cards offer a number of advantages over bank debit and ATM cards and even prepaid credit cards, including:

  • No overdraft fees. Overdraft and returned check fees can be costly, and anyone with a debit card or checking account is subject to the risk of these fees. Prepaid debit cards bypass these fees because they are not linked to a checking account and if the funds don't exist, the card will be declined.
  • No credit checks. With no line of credit and no monthly payments, a prepaid debit card does not require a credit check. This makes it ideal for those with little credit or poor credit.
  • Ability to withdraw from an ATM. Prepaid debit and credit cards share a lot of the same characteristics; however, prepaid debit cards don't let you withdraw money from an ATM. A prepaid debit card has a PIN, similar to a bank debit card, and allows you to withdraw money from almost any ATM.

There are also drawbacks to using a prepaid debit card, such as:

  • Fees. The fees associated with prepaid debit cards are extensive and can really start to add up. In fact, this is the major drawback to using this type of card. Typically, in addition to monthly fees to even have a prepaid debit card, fees are incurred for anything from loading cash onto a card to withdrawing funds to closing an account.
  • Won't help you build credit. Many people opt for prepaid cards to help them build or repair credit. However, even with a Master or Visa card logo on the front, a prepaid debit card is not the same as a prepaid credit card and will not do anything to establish or improve credit.

When is a prepaid debit card a good idea?

Despite what can be hefty fees, a prepaid debit card can be actually be advantageous over bank debit cards in a number of circumstances:

  • Curbing spending. A prepaid debit card will help you stick with a budget without having to carry cash. When you know there are limited funds available, you are less likely to overspend.
  • Protecting your identity online. Data theft is rampant. Using a bank debit card to make purchases online can make you susceptible to theft, even on secured or encrypted sites. A prepaid card eliminates this worry, as it is not linked to personal checking accounts or Social Security numbers.
  • Keeping money safe. Because prepaid debit cards aren't linked to personal accounts, the losses incurred are limited to what is on the card in the event your card is stolen or lost. This can be especially helpful overseas.

A prepaid debit card can be a useful tool. Just make sure you do your research before selecting a card and understand when fees will be charged.

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  • vincent Charles Rozycki Oct 8, 2014 8:37:26 PM
    Where's the money?

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