Prepaid debit cards are an easy way to make purchases without a line of credit or a bank account.
If you don't have access to a traditional bank account, struggle to spend within your means or want to teach your children financial responsibility, prepaid cards can be the solution.
They do have limitations, though, especially if you want to avoid fees and build credit.
What is a prepaid debit card?
A prepaid debit card can be used to make purchases and pay bills. But unlike a credit card or account-linked debit card, you need to add funds first.
You can load money in a variety of ways, including by bank transfer or check deposit via mobile app or with cash at a participating retailer, like 7-Eleven or Walmart. The cards have account and routing numbers, so you can also set up direct deposit of a paycheck or benefits payment.
Your spending is limited to the amount loaded onto the card. There are also a variety of charges, including card-opening fees, monthly maintenance fees, reloading fees, ATM fees and foreign transaction fees. Some providers also charge an inactivity fee if you don't use your card for a certain number of days,
The PayPal Prepaid Mastercard® comes with a $4.95 monthly usage fee, as well as ATM withdrawal and check deposit fees. But you can earn 5% back on up to $1,000 spent in your selected category every month.
PayPal Prepaid Mastercard®
Card opening fee
Up to $4.95 in stores, $0 online
Monthly fee
$4.95
Maximum balance
$15,000
Cash reload fee
Up to $3.95
ATM withdrawal fee
$2.50 per withdrawal, plus ATM operator fee
Foreign transaction fee
4%
Rewards
N/A
Mobile check deposit
Yes
Terms apply. Information about the PayPal Prepaid Mastercard® has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.
Pros
- Easily integrates with your PayPal account
- You may receive special offers and rewards when you shop at qualifying stores
- No card opening fee when you open an account online
Cons
- $4.95 card opening fee at retailers
- $4.95 monthly fee
- 4% fee on purchases made outside the U.S.
- This card is not available in Vermont
With the FamZoo Prepaid Card, parents can teach children about financial responsibility while making sure they don't go too far. You can set up automated billing for recurring expenses (like cell phone plans) and determine your own interest rates on family loans.
FamZoo Prepaid Card
Card opening fee
$0 for first 4 cards, then $3 for each additional card
Monthly fee
$5.99 (or as low as $2.50 if you prepay for 24 months in advance)
Maximum balance
$5,000
Cash reload fee
$4 to $6
ATM withdrawal fee
None, but the ATM operator may charge a fee
Foreign transaction fee
None
Rewards
N/A
Mobile check deposit
No
Terms apply.
Pros
- Great way for parents to teach kids about money
- Parents can control kids' spending, set up automatic recurring transfers (i.e. allowance), lock and unlock cards
- No card opening fee for the first 4 cards (then $3 per card)
- No fee on purchases made outside the U.S.
Cons
- Up to a $5.99 monthly fee
- $3 card opening fee after your first 4 cards
- No mobile check deposit
What to look for in a prepaid debit card
Not all prepaid cards are built alike.
Fees: In addition to many of the same charges as credit cards, you may find many additional fees. Look for one with a low (or no) monthly usage fee and a fee-free network of ATMs. Try to avoid cards that charge an inactivity fee.
Loading options: Check how you can add money, including retailers that will reload your card and the maximum deposit and balance amount
Benefits: Some cards offer cash back or enable you to earn interest on the money in your account.
Prepaid debit card pros and cons
While prepaid cards serve a need, they do come with drawbacks.
- You don't need a bank account
- Since you're limited to the balance on the card, you have better control over spending
- Avoid overdraft fees and interest charges
- Safer than carrying a large amount of cash
- Good way to educate children about financial responsibility
- There are often fees for activating, owning and reloading the card, among other charges
- Usually have maximum balance limits and daily or monthly reload and spending caps
- Transactions aren't reported to credit bureaus, so cards don't help build credit
Alternatives to prepaid debit cards
If you're still working on your credit, there are other options besides a prepaid card
Secured credit cards
Because your payment history is reported to credit bureaus, secured credit cards can build or rebuild your credit. They operate like traditional credit cards, but require a security deposit that doubles as your credit limit. After responsible spending and on-time payments, you may be invited to transfer to an unsecured card.
You can get approved for a $200 line of credit with a Capital One Platinum Secured Card with just a $49 deposit. Cardholders can qualify for a $1,000 limit after as little as six months of on-time payments.
Capital One Platinum Secured Credit Card
Rewards
None
Welcome bonus
No current offer
Annual fee
$0
Intro APR
N/A for purchases and balance transfers
Regular APR
28.99% variable
Balance transfer fee
$0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you
Foreign transaction fee
None
Credit needed
No credit history
Terms apply.
Pros
- No annual fee
- $49, $99 or $200 refundable deposit
- No fee charged on purchases made outside the U.S.
- Flexibility to change your payment due date
Cons
- High variable APR
- No rewards program
Second‑chance checking accounts
Second-chance checking accounts provide basic banking services, like direct deposit, bill pay and debit cards, to people with bad credit, overdrafts or other financial issues. After a certain period, you may be able to upgrade to a standard checking account.
Authorized user cards
Being added as an authorized user on someone else's card without a credit check. You'll improve your credit score and help the primary holder earn rewards. The cardholder will be liable for any unpaid balance, however, regardless of who made the purchase.
FAQs
What's the difference between a prepaid debit card and a bank-issued debit card?
The main difference is that you need to load prepaid debit cards with cash, while regular debit cards draw funds from your checking account. Both can help you manage your money better but neither will help you build credit.
What fees do prepaid debit cards come with?
Depending on the card, you may have to pay a card-opening fee, a monthly usage fee, a reloading fee, an ATM fee and a foreign transaction fee. Some cards charge a monthly inactivity fee if there are no transactions after a certain number of days.
How do you add money to a prepaid card?
You can load money onto your prepaid debit card with a direct deposit of a paycheck, a transfer from a checking or savings account, a mobile check deposit or with cash at a participating retailer.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed financial decisions. Every prepaid debit card review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of banking products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best prepaid debit cards.
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