Updated April 17, 2018 – Most people probably know what a pre-paid debit card is. As a refresher, a pre-paid debit card is very similar to a store gift card. A set amount of money is added to a card and once that set amount has been spent, you can either reload it to your desired level or throw it away without fear of your information reaching the wrong hands. However, unlike store gift cards, a pre-paid debit card has a major credit card logo on it, so you can use it at almost any place of business or online retailer. Though this industry has been booming in recent years and despite the multitude of benefits, finance industry watchdogs have been reporting that these types of cards are also unfairly charging fees to unsuspecting customers, so it’s important to understand the costs and benefits when deciding if a pre-paid debit card is right for you.
Use Pre-paid Debit Cards to Help Control Your Spending
One of the major advantages of this spending option is that it can be used for budgeting. You can only spend the amount of money that you have loaded. This means that you can’t go over the amount, even by $0.01. This is a great way for those living on a tight budget to ensure they don’t spend more than they make, or even for parents to control what their teenagers or college-aged students are spending. With this option, overspending is out of the equation.
You Don’t Have to Have Good Credit
Another major benefit of a pre-paid option is that anyone over the age of 18 can get one. There are no credit checks or ChexSystems checks. Even if your score is non-existent or so low that you don’t qualify for a bank account, pre-paid remains another valid financial avenue for you besides cash.
Pre-paid vs Secured
Some people have a pre-paid credit card confused with a secured credit card. Secured requires a credit check and will help you to build up your score. Pre-paid will not affect your score in any way. If you are looking to build your score, keep this in mind. However, a major benefit of prepaid is that there are no credit checks or ChexSystems checks and anyone over the age of 18, regardless of their score, can get one.
Safely Shop Online
Many consumers worry about using their personal or bank information when shopping online. If a thief were to get a hold of this information, they could rack up thousands of dollars in debt due to high credit card limits or wipe out someone’s savings in their bank account.
If you are wary of using this information when shopping online, a pre-paid option may be the perfect alternative. You simply load the amount of money that you need to complete your transaction and that is it. It is no more connected to your personal banking information than cash.
Easy to Deposit Money
Depositing money into the card is very simple. Some have a routing number that allows you to have your work checks deposited directly onto the card, or even allow you or others to transfer money from a bank to the card. Various retailers can even reload the money for you, making checkouts safe and easy. Most typically though, you can reload online using a debit or credit card.
Potential Associated Fees
Though they have a multitude of benefits, they also often charge fees that can add up if you’re not paying attention. Here is a list of fees to watch out for when looking for a pre-paid debit card:
- ATM fees
- Activation fees
- Monthly maintenance fees
- Signature transaction fees
- Pin transaction fees
- Design fees
- Reload fees
As you can see, these fees can really add up if you’re not careful. It is extremely unlikely that one company will charge all of these fees on one pre-paid card, so it is definitely possible to use a company that only charges fees for features that you don’t plan on using, thus allowing you to avoid the fees altogether. American Express even offers a pre-paid option that charges no more than a $5 set up fee. It’s important, however, to do some research and be aware of the features and associated fees.
There are a number of reasons why you may be thinking about getting a pre-paid debit card. You can rest assured that you are making an educated decision about whether one could benefit you now that you understand the pros and cons.