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How Do Prepaid Debit Cards Function and are they right For You?
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What is the best way to make sure that prepaid debit cards Function and are they right for You?
Pay in advance for money on an 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 been writing about the personal financial sector since, with a particular focus on certificates of deposit as well as other banking-related topics. The work he has written for him was highlighted by The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among other publications. He is based in Berkeley, California.
Updated Mar 18, 2022
Edited by Yuliya Goldshteyn, Assistant Assigning Editor Yuliya Goldshteyn is a banking editor at NerdWallet. She was previously an editor, researcher, and a writer in a variety of industries, from medical care and market research. She received a bachelor's diploma in history from the University of California, Berkeley and a master's in social sciences from the University of Chicago, with an emphasis on Soviet culture and history. She lives in Portland, Oregon.
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A prepaid debit card acts as an alternative to an bank account, and only allows you to spend the funds you load onto the card. Like the debit card, these debit cards work at any merchant which accepts its payment network, like Visa as well as Mastercard. They're more secure and easier to use as compared to cash.
Many prepaid debit cards don't require credit checks, therefore they're not difficult to obtain. If you're one of the 7 million U.S. households without access to an bank account, prepaid cards are a viable option to securely spending money without needing to make use of the bank. Here's how you can get an prepaid debit card and how they work.
How can I purchase an prepaid debit card?
You can buy a prepaid debit card from an institution, retailer or credit card company, or another financial service provider. When you purchase one, your card is usually a in an account managed by a bank or credit union. Note that they can also be called stored-value cards, pay-as-you-go cards or, more specifically, general-purpose reloadable prepaid cards.
>> Do you want to look at comparing prepaid cards? Check out our list of
Nerdy Tip
If you're looking to improve your credit or are denied the use of a bank account, a prepaid debit card might not be the best option: , and if you can't get an ordinary checking account Try . These accounts offer another chance at banking that is mainstream and has its perks.
Savings Cash Management CD Checking Money Market
A savings account is a place where you can keep money safe while earning interest.
A savings account is an account where you can keep money safe with interest.
Member FDIC
SoFi Savings and Checking
APR 4.00% SoFi members who have direct deposit are eligible to receive up 4.00% per year in annual percentage yield (APY) on savings balances (including Vaults) and 1.20 percent APY on their checking balances. No minimum direct deposit amount needed to earn the 4.00% APY for savings. Direct deposit members will earn 1.20% APY on all account balances , including savings and checking (including Vaults). Interest rates are variable and could change at any time. These rates were last updated on 03/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Min. balance for APY $0
Member FDIC
Marcus from Goldman Sachs Online Savings Account
APR 3.75% 3.75% APR (annual percentage yield) with $0 minimum balance to earn stated APY. Accounts must have an active balance in order to remain open. APY current as of 02/14/2023.
Min. balance to APY $0
Member FDIC
CIT Bank Platinum Savings
APY 4.75%
Min. balance for APY $5,000
These cash accounts combine services and features similar to savings, checking and/or investment accounts into one account. These accounts for managing cash are usually offered by non-bank financial establishments.
The cash accounts offer features and services similar to checking, savings or investment accounts into one account. These accounts for managing cash are usually offered by non-bank financial establishments.
on Wealthfront's site
Cash Account at Wealthfront
APY 4.30%
Min. balance for APY $1
on Betterment's site
Betterment Cash Reserve - Paid non-client promotion
APY 4.20 percent Annual percentage yield (variable) is as of 03/27/2023.
Min. balance for APY $0
CDs (certificates of deposit) are a form of savings account that comes with the option of a fixed rate and time, and usually have higher rates of interest than regular savings accounts.
CDs (certificates of deposit) are a kind of savings account that has a fixed rate and term typically, they have higher interest rates than traditional savings accounts.
Member FDIC
Marcus by Goldman Sachs High-Yield 10-Month CD
APY 5.05 5 % 5.05% APY (annual percent yield) as on 03/28/2023. Special Offer Expires 09/15/2023.
Term 10 months
CIT Bank No-Penalty CD
APY 4.80%
The term is 11 months
Deposits are FDIC Insured
Current Account
APR N/A
Monthly fee of $0
Chime Checking Account
APR 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 percent according to the following rate of rewards Direct deposits (not including inter-bank transfers 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 other interest rate qualifications to apply. Ten (10) transactions at the point of sale each month with your Rewards Checking Visa(r) Debit Card for normal everyday purchases with minimum $3 per transaction, or registering for Account Aggregation/Personal Finance Manager (PFM) will earn 0.30 percent; and maintaining an average daily balance of at least $2,500 per month for an Axos Self-Directed Trading Invest account will earn 1.00%; maintaining the average balance per day of at least $2,500 within 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) through a transfers from the rewards checking account earns a maximum of 0.60%.
Monthly fee $0
Market accounts for money pay interest rates that are similar to savings accounts and have certain checking features.
The money market accounts have rates similar to savings accounts. They also have certain checking features.
Member FDIC
Discover Bank Money Market Account
APY 3.50 percent
Min. balance required for APY $1
How prepaid debit cards work
Prepaid cards are diverse however they usually have these features in common:
Fees: You could have to pay for activating or getting a card, or for making deposits, or using ATMs that are not in network. There's often a monthly fee that can sometimes be waived -- by having direct deposits, for example. Certain cards charge an amount for each purchase and ATM transaction.
Reload options: You can typically add funds to a credit card in various ways, such as creating direct deposits, loading cash at participating retailers and depositing checks at ATMs. Some cards let you make online transfers and mobile check deposits from a smartphone.
ATM access: Some prepaid cards have access to the free national ATM networks, including MoneyPass and Allpoint as well as to branded bank networks for cards issued by banks.
Amount limits Certain cards restrict the amount you can pay, withdraw, or spend during a certain period for example, the day or month.
Security: Reloadable prepaid cards come with the liability and fraud protections that debit cards are required to have by federal law. Some cards have purchase protections however it is difficult to challenge transactions that are not authorized or fix mistakes. A security feature that many cards offer are federal deposits 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 another card prior to the expiration date so you can continue using it. In a report from 2016 released by the Consumer Financial Protection Bureau, some users complained about having funds on their cards after they ran out of credit, but the issuer did not reissue cards that included the balances. If you're experiencing this, reach out to the company that issued your prepaid cards to see if the issue is possible to resolve the issue. If not, you may seek assistance go to the CFPB website.
Other benefits Other features: Some prepaid cards provide checking, on-line bill pay as well as multiple versions of the credit card to family members. Some cards even provide rewards such as cash back on purchases, similar to what credit cards that reward you.
>> Think a debit card might be what you need? Read more about
Prepaid debit cards have limitations
Prepaid debit cards have major restrictions compared to banking account and credit card. While they usually have online services, many prepaid cards lack standard banking options, like a way to withdraw or refill cash at no cost. The cash you put onto a card isn't likely to yield interest, neither.
If you only want to store cash in a safe place and don't expect to make many withdrawals It's a good idea to choose a savings account for your money. The debit cards you pay with aren't affecting your credit, so they don't aid in building it either.
There is no impact on credit scores: Because the debit cards that you purchase aren't credit cards, you can't build credit with them. For that, you'd want to .
Lack of bank services: Prepaid cards don't come with all the features you'd expect from accounts for checking, like access to an ATM or branch network, online or mobile banking or banking services such as wire transfers and the capability to stop the payment.
Recent horror stories: Many credit cards that are prepaid were affected by technology problems that lasted for several days or even weeks. The parent company of RushCard switched the processor for its payments in 2015 to Mastercard In 2015, an technical glitch locked hundreds of thousands of customers from their RushCard accounts for days. The Walmart MoneyCard experienced an outage in the year 2016. Netspend settled in a dispute with the federal government on claims that customers were blocked by their account access. They also provided reimbursements to those qualified.
If you want an account with a checkbook that does not charge monthly fees, consider our list of the . These are also available for those with bad credit or banking histories.
Whether used as a budgeting tool or an alternative to bank, prepaid debit cards can help you store and spend money.
Prepaid debit cards vs. debit and credit cards
Here's a quick summary of the distinctions:
Prepaid debit cards -- pay in advance: You load money onto the card by cash or checks direct deposit, or a transfer from another account before paying for transactions. A checking account is not required.
Credit cards: Pay today: You use funds directly from a checking account when paying for purchases or withdrawing funds at an ATM.
Credit cards -Pay later: You borrow money from a bank each time you use your credit card. Then, you pay the money back later.
Are you ready to look at your options? Take a look at our recommendations for the
Prepaid debit card alternatives
If a prepaid debit card isn't for you, then you can find a good alternative with the option of a checking account with no fees. While certain checking accounts have monthly costs there are many institutions online offer accounts with no annual fees and minimum requirements for balance, and you can choose a different option for those who have had issues with bank accounts prior to now. Look over these accounts, including one that doesn't need your (ChexSystems is the company that banks use to track clients who've had problems with their earlier banking accounts).
The ratings of NerdWallet are formulated by the editorial staff. The scoring formulas take into account many data points for every financial product or service.
Monthly fee: $0.
Access to ATMs for free: More than 60,000 ATMs.
Bonus features: No overdraft fees. No ChexSystems records check.
More details from Chime
Chime says: "Cash withdrawal and third-party fees can be charged. Chime is a financial technology company, not a bank. Services offered by banks debit card issued by, The Bancorp Bank or Stride Bank, N.A. and members of the FDIC."
NerdWallet's ratings are determined by the editorial staff. The scoring formulas take into account multiple data points for every financial product or service.
Monthly fee: $0.
Free ATM access: Over 43,000 ATMs.
Bonus features: Account pays interest.
NerdWallet's ratings are determined through our team of editors. The scoring formulas take into account many data points for every financial product or service.
Monthly cost: $1.
Free ATM access: Over 70k ATMs.
Bonus features: Account pays interest.
About the author: Spencer Tierney is a writer, and NerdWallet's expert on deposit certificates. The work of Spencer Tierney has been covered by USA Today and the Los Angeles Times.
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