When it’s concerned with where to keep money, the first thought that comes to mind is about credit or debits cards. However, there are another kinds of cards also like prepaid cards. Let’s grab some knowledge on prepaid cards and get to know Top 5 Astonishing Pros and Cons of Prepaid Cards.
A prepaid debit card is a type of debit card, similar to a re-loadable gift card or stored-value card. You can load it with a cash balance and use it anywhere a particular card network—Mastercard, Visa, Discover, or American Express—is accepted.
How Prepaid Debit Cards Work?
You can buy prepaid debit cards at supermarkets, convenience stores, and many other outlets, as well as directly from the companies that issue them. Because there’s no credit involved—you can only spend the money you put on the card—there’s no credit check required to get one. Though a poor credit history doesn’t hinder your chances of obtaining a prepaid card, having one also doesn’t help you improve your credit score.
You load cash onto your card, either at an ATM or a participating store or through direct deposit. Prepaid cards have account and routing numbers, which can make it possible to arrange for direct deposit of your paycheck or government benefits.
You can make in-store and online purchases, pay bills, or withdraw cash from an ATM. Many of the companies that offer these cards have apps you can use to keep track of your balance, review your transactions, and transfer funds.
Top 5 Astonishing Pros and Cons of Prepaid Cards
Since you have got an idea about Prepaid cards, let’s hop on to the Top 5 Astonishing Pros and Cons of Prepaid Cards.
Top 5 Benefits of Prepaid Debit Cards
- Convenient to reload
Prepaid, reloadable debit cards enable you to add funds in a number of ways: via direct deposit, transfers from your checking account, purchasing a “reload pack” or adding funds at the card issuer’s institution or certain retail locations.
- Limit losses
You can’t lose more than the balance on your prepaid card, even if you become the victim of fraudsters.
If you use a debit card instead, its liability protection likely has you covered, but some consumers prefer using a prepaid card when making an online or in-store transaction, rather than putting their full checking account at risk.
As of April 2019, cards marketed as prepaid are covered by the Electronic Fund Transfer Act; which means card issuers have to investigate and reimburse you for unauthorized charges or errors as long as you file a timely report.
You may also be eligible for certain additional protections offered by the card’s network. However, in order to get those benefits, you have to register the card with the issuer.
- Teach kids how to manage money
Prepaid cards are a convenient tool for teaching kids about managing money and navigating an increasingly cash-free economy. Some prepaid cards specialize in this market, making it easy for parents to put a child’s allowance or other money on the card.
- Keeping money safe when traveling
Prepaid debit cards are easily used overseas. And there’s another upside: If your card is stolen, your losses are limited to the amount on your card. You’re not stuck with a drained bank account, damaged credit or lost time recovering funds, Woolf says. “You have damage control.
- Reap some rewards
Some issuers of prepaid cards even have rewards programs, much like credit cards do. The American Express Serve Cash Back card, for example, offers unlimited 1% cash back on all purchases.
The Walmart MoneyCard offers 3% cash back at Walmart.com and in the Walmart app, 2% cash back at Walmart fuel stations, and 1% cash back at Walmart stores, up to $75 per year.
Disadvantages of Prepaid Cards
- No credit reporting
As mentioned above, prepaid cards, like other debit cards, do not report your transaction information to credit bureaus, so they are of no value if you’re trying to build a credit history or improve your credit score.
In that case, you may be better off applying for a secured credit card. That’s a special type of credit card for people with a limited credit history or a poor one. A good secured card will report your bill payments to all three major credit bureaus.
- Fees—and lots of them
Depending on the card you choose, you may face an activation fee, monthly fees, transaction fees, and reloading fees.
Some even assess inactivity fees if you don’t use your card for an extended period of time. Needless to say, fees can add up quickly and drain your card’s balance.
The Consumer Financial Protection Bureau implemented new rules in 2019 to make it easier to compare the fees on prepaid cards. Now, issuers have to provide a chart showing the card’s fees on the outside of the card packaging, as well as more detailed information on the inside.
They also must post fee information online on the company website.
- No credit building
Although a prepaid card can’t hurt your credit report, it also won’t help you rebuild it. Credit bureaus don’t include prepaid debit card history when calculating your credit score.
- Less security
The kind of protection you get against fraud and unauthorized charges on your prepaid card varies among card issuers; some card providers have stronger protection than others. But good news is on the horizon: Effective April 1, 2019, the Consumer Financial Protection Bureau new rule will offer guaranteed legal rights for prepaid account users, such as protection against loss and theft.
- No FDIC Insurance
If your bank fails, the government guarantees up to $250,000 of your money in an individual bank account. The same cannot be said for money on a prepaid debit card.
The best prepaid cards might be eligible for FDIC “pass-through insurance,” but they must meet certain qualifications.