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How do Prepaid Debit Cards Work ? And Are They the Right Choice For You?
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What are the advantages of prepaid debit cards? Work ? And Are They the Right Choice for You?
Pay in advance for money on a prepaid debit card, and then utilize it at ATMs, or for purchases. The card can be reloaded by a variety of methods.
Written by Spencer Tierney Senior Writer | Certificates of Deposit, ethical banking, banking deposit accounts Spencer Tierney is a consumer banker at NerdWallet. He has covered finances for individuals since the year 2013, with a focus on certificate of deposit as well as other banking-related issues. His work has been highlighted in The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among other publications. The location of his work is Berkeley, California.
Updated on Mar 18, 2022.
Edited by Yuliya Goldshteyn Assistant editor Yuliya Goldshteyn is a bank editor for NerdWallet. She previously worked as an editor, writer and a research analyst in a variety of industries, from health care as well as market research. She earned a bachelor's degree in history from the University of California, Berkeley as well as a master's degree in sociology from University of Chicago, with an emphasis on Soviet culture and history. She is located within Portland, Oregon.
Read by Kathleen Burns Kingsbury Wealth psychology expert and coach Kathleen Burns Kingsbury, founder of KBK Wealth Connection and host of the Breaking Money Silence podcast, is an internationally published author and speaker. As an expert on financial psychology, Kathleen is a regular on the television, and her work has been highlighted by The New York Times, The Wall Street Journal, "PBS NewsHour,"" Money magazine, Today Money, Forbes and CNBC. Kathleen served as an adjunct faculty member of McCallum Graduate School from 2009 to 2019. McCallum Graduate School at Bentley University from 2009 until the year 2019 and currently teaches for the Champlain College. Champlain College.
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A prepaid debit card acts as an alternative to the bank account, and only lets you spend the money that you put into the card. Similar to credit cards, debit cards work at any merchant that accepts their payment network, like Visa as well as Mastercard. They're more secure and easier to use than cash.
The majority of prepaid debit cards do not need credit checks, which means they're easy to get. If you're one of the estimated seven million U.S. households without access to an bank account, prepaid cards can be a solution to spend money safely without having to make use of a bank. Find out how to obtain the prepaid debit card you want and how they work.
How can I purchase a debit card that is prepaid?
It is possible to purchase an prepaid debit card at banks, a retail store and credit card company, or another financial service provider. When you purchase one, your card funds are usually in an account managed by a bank or credit union. Note that they can also be referred to as stored-value cards, pay-as-you go cards, or more formal general-purpose reloadable prepaid cards.
>> Do you want to look at comparing prepaid cards? Check out our list of
Nerdy Tip
If you need to build credit or have been denied a bank account, a prepaid debit card may not be the best option: , and if you're not able to open an ordinary checking account Try . These accounts give you another chance at the mainstream banking system and the benefits that come with it.
Credit Card for Savings and Cash Management. Money Market
A savings account is an account that lets you store money securely with interest.
Savings accounts are an account where you can store money securely with interest.
Member FDIC
SoFi Checking and Savings
APR 4.00 percent SoFi customers who have direct deposit can earn up to 4.00 percent annually-percentage yield (APY) on savings balances (including Vaults) and 1.20% APY on checking balances. There is no minimum amount of direct deposit that is required to be eligible for 4.00 percent APY on savings. Customers who do not deposit direct deposits will earn 1.20 percent APY on their total account balances in checking and savings (including Vaults). The rates of interest are subject to fluctuation and are could change at any point. The rates listed are current as of 03/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Min. balance required for APY $0
Member FDIC
Marcus by Goldman Sachs Online Savings Account
APY 3.75% 3.75% Annual percentage yield (annual percent yield) with a minimum balance of $0 to earn the stated APY. Accounts must be in a positive balance to remain open. APY is valid until 02/14/2023.
Min. balance to APY $0
Member FDIC
CIT Bank Platinum Savings
APY 4.75%
Min. balance for APY $5,000
They combine the services and features that are similar to checking, savings and/or investment accounts in one package. These accounts for managing cash are generally offered by non-bank financial institutions.
These cash accounts combine features and services that are similar to savings, checking or investment accounts into one product. These accounts for managing cash are generally offered by non-bank financial establishments.
on the Wealthfront website.
Wealthfront Cash Account
APY 4.30%
Min. balance required for APY $1
on the Betterment website.
Betterment Cash Reserve - Paid non-client promotion
APY 4.20 Percentage of annual percent yield (variable) is at 03/27/2023.
Min. balance for APY $0
CDs (certificates of deposit) are a kind of savings account with a fixed rate and term generally, they offer higher rates of interest than standard savings accounts.
CDs (certificates of deposit) are a form of savings account with an interest rate fixed and a term generally, and offer higher rates of interest than regular savings accounts.
Member FDIC
Marcus by Goldman Sachs High-Yield 10-Month CD
APY 5.05 percent 5.05 5 % APY (annual percent yield) as of 03/28/2023. Special Offer Ends 09/15/2023.
Ten months of term
CIT Bank CD with no penalty
APY 4.80 percent
Term 11 months
The deposits are FDIC Insured
Current Account
APR N/A
Monthly fee of $0
Chime Checking Account
APY N/A
Monthly fee $0
Member FDIC
Axos Bank(r) Rewards Checking
APY 3.30% The annual percentage yield could be up to 3.30% depending on the following combination rate-rewards Direct deposits (not including transfers between banks from an account) that total more than $1500 each month will earn 0.40 percent. A direct deposit that is eligible for a qualifying amount is required for the remaining rates to be eligible. Ten (10) point-of-sale transactions per month , using your Rewards Checking Visa(r) debit card for normal everyday purchases with a minimum of $3 per transaction, or registering for Account Aggregation/Personal Finance Manager (PFM) will earn 0.30 percent; and maintaining an average balance per day of $2,500 per month in the Axos Self Directed Trading Invest account will earn 1.00 percent; and maintaining the average balance per day of $2,500 a month on An Axos managed Portfolio Invest account will earn 1.00 percent; and making a monthly installment for an existing Axos Consumer Bank loan (commercial as well as business loans excluded) via the Rewards Checking Account earns a maximum of 0.60 percent.
Monthly fee: $0
Money market accounts pay rates that are comparable to savings accounts. They also have certain features for checking.
The money market accounts have rates that are comparable to savings accounts and have some features for checking.
Member FDIC
The Discover Bank Money Market Account
APY 3.50 percent
Min. balance to APY $1
How do prepaid debit cards function?
Prepaid cards can be found in a variety of different designs, but they tend to include these features:
Fees: You might be required to pay for activating or obtaining a credit card, depositing money and using out-of-network ATMs. It's common to have a monthly cost however, it is sometimes reduced by making direct deposits, as an example. Some cards charge an amount for each purchase as well as ATM transaction.
Options for reloading: One can generally add money to a credit card in various ways, including creating direct deposits, loading cash at participating stores and depositing checks at ATMs. Some cards also let you transfer funds online or make mobile check deposits via smartphones.
ATM access: Some Prepaid cards can access the free national ATM networks, such as MoneyPass and Allpoint, or to bank networks that are branded for cards issued by banks.
Limits on amounts Certain cards limit the amount you can pay, withdraw, or spend for a particular time period, such as one day or a month.
Protections: Prepay cards that can be reloaded come with the liability and fraud protections required of debit cards by federal law. Certain cards provide protection against purchases, but it can be difficult to dispute unauthorized transactions or correct errors. One safeguard many cards have is federal deposit insurance. This means that your funds are covered in the event the issuer goes bankrupt.
Expiration dates: Prepaid cards have expiration dates. The funds on the card shouldn't expire, however you'll need to get a new card prior to expiring so that you can continue using it. In a report released in 2016 released by the Consumer Financial Protection Bureau, some users complained about having money on their cards when they expired, but the issuer didn't issue cards that included those balances. If this happens to you contact the prepaid card company to determine if the issue can be resolved. If not, you can go to the CFPB website.
Other features: Some prepaid cards offer checks, bill pay and multiple copies of a card for family members. There are a few that offer rewards like money back when you purchase similar to the credit cards with rewards do.
Are you thinking that you might need a debit card the answer you're looking for? Read more about
Prepaid debit cards have limitations
Prepaid debit cards are characterized by significant limitations when compared to bank account and credit card. Although they typically have online services, many prepaid cards lack standard banking features, including a way to withdraw cash or reload it without cost. The money you load onto a card isn't likely to earn interest, either.
If you're looking to store cash in a safe place, and don't plan to take many withdrawals It's a good idea to find a high-rate savings account to hold your money. Debit cards that are prepaid won't impact your credit, so they don't aid in building it either.
There is no impact on credit scores As the debit cards that you purchase aren't credit cards, you can't build credit with them. To do this, you'd have to .
Lack of bank services: Prepaid cards don't automatically have all the features you'd expect with an account with a checking account, such as access to an ATM or branch network, mobile or online banking or banking services such as wire transfers as well as the option to stop the payment.
Previous horror stories: A number of Prepaid cards were affected by technology outages that lasted days or weeks. When RushCard's parent company switched the processor for its payments to Mastercard during 2015, a glitch in the technology caused the accounts of tens of thousands of customers out of their RushCard accounts for several days. The Walmart MoneyCard was shut down in 2016. Netspend resolved with a federal regulator over allegations that customers were prevented from accessing their accounts, providing refunds to those who were eligible.
If you're looking to open an account that doesn't have monthly charges, check out our selection of . They also offer accounts for those who have bad credit or banking histories.
When used for budgeting or as an alternative method to bank the money, prepaid debit cards will assist you in storing and spending money.
Prepaid debit cards vs. debit and credit cards
Here's a quick summary of the differences:
Credit cards with prepaid cards -- make payments before the card is loaded with money the card via cash check, direct deposit or a transfer from an account prior to paying for transactions. No checking account is required.
Credit cards: Pay now Pay now: You can use the funds directly from a checking account when making purchases or withdrawing money through an ATM.
Credit cards -Pay later: You can borrow cash from a financial institution when you use your credit card. Then, you pay the money back later.
Are you ready to explore your options? Look through our selections for the
Prepaid debit card alternatives
If a prepaid debit card isn't quite right for you, you can choose a more suitable alternative using the option of a checking account with no fees. Although certain checking accounts are subject to monthly fees There are a lot of institutions online offer accounts with no monthly fees and minimum requirements for balance, and there are options for those who have had issues with your bank account previously. Check out these three accounts which include one that does not require your (ChexSystems is the company that banks use to monitor clients who've had problems with their earlier account openings with banks).
NerdWallet's ratings are made by the editorial staff. The scoring formulas consider multiple data points for each financial product and service.
Monthly cost: $0.
Access to ATMs for free: More than 60,000 ATMs.
Bonus benefits Free overdrafts. No ChexSystems records check.
More information from Chime
Chime claims: "Cash withdrawal and third-party fees can be charged. Chime is a technology-based financial company, not a bank. Services offered by banks debit card issued by, The Bancorp Bank or Stride Bank, N.A. • Members of FDIC."
NerdWallet's ratings are determined by our editorial team. The scoring formulas take into account several data points associated with every financial product or service.
Monthly cost: $0.
Free ATM access: More than 43,000 ATMs.
Bonus features: Account pays interest.
The ratings of NerdWallet are formulated by the editorial staff. The scoring formulas take into account several data points associated with each financial product and service.
Monthly fee: $0.
Access to ATMs for free: More than 70k ATMs.
Bonus features: Account pays interest.
Author bio Spencer Tierney is a writer, and NerdWallet's expert on certificates of deposit. The work of Spencer Tierney has been featured on USA Today and the Los Angeles Times.
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