If you do not have a bank account, have bad credit or have issues budgeting, a prepaid debit cards may be your answer. Here is how they work.

What is a prepaid debit card?

A prepaid debit card allows you to spend the money – and only the money – you load onto the card. Like a debit card, a prepaid card functions at any retailer that accepts its payment system, typically Visa or Mastercard. It is safer and more convenient than using cash.

Looking to get one?

When you get a prepaid card from a merchant, bank or card company, you are opening a trade account held by a financial institution.

Unlike a debit card, however, you can spend only the amount of money you set in the prepaid card accounts. The card companies typically offer different ways to do this and some cards have the option of connecting to a checking account to make transfers simpler.

Best for the credit invisible, bankless or budgeters

Since most prepaid debit cards do not require credit checks, they are simple to get. If you are in one of the approximately 9 million U.S. families without access to a bank account, prepaid cards can be a great solution to hold your money. Some cards allow you to sync up your direct deposit checks as well, so you can use this holding account exactly like a bank account.

If you try spending more than you have, most cards only decline the transaction with no additional fee. Prepaid cards can be helpful for individuals on a fixed income, teens who get allowances and relatives visiting from other countries.

Prepaid debit cards do have significant limitations in comparison with bank accounts and credit cards. Although they generally have online services, many prepaid cards don’t have standard bank services, like a means to withdraw or reload cash at no cost. Some cards allow you to earn interest, however not all of them. If you only wish to load money for safekeeping, and do not plan to create many withdrawals, it might be better to find a high rate savings account for your funds.

The most common downside of a prepaid debit card is they do report to credit services, so you will not be able to build your credit

See how Secured Credit Cards Work

Prepaid cards features:

Reload options: You can usually add money to a card in numerous way including:

  • loading money at participating retailers
  • depositing checks at ATMs
  • setting up or direct deposits.
  • Some cards offer online transfers or mobile check deposits.

ATM accessibility: Some prepaid cards have access to free nationwide ATM networks or to branded bank networks for cards issued by banks.

Fees: Prepaid cards come with fees for use. Card activation fees, utilizing out-of-network ATMs, monthly fees, are all possible fees you can have associated with your prepaid card.

Transaction limits: Some cards limit how much you can draw, reload or invest during a specific period, including a month or day.

Protections: Cards may provide purchase protections, but it can be tricky to dispute unauthorized trades or fix errors. However, your money is insured if an issuer becomes bankrupt. But typically, reloadable prepaid cards do not have the fraud or liability protections that federal law requires debit cards to own.

Expiration dates: Prepaid cards do have expiration dates, so you will have to reapply or renuw your card. Rest assured the funds on the cards do not expire regardless.

Other attributes: Some prepaid cards provide check writing, online bill pay and many copies of a card for family members. A rare few even offer benefits like cash back on purchases, like what rewards credit cards perform.

Limitations of prepaid debit cards

No impact on credit: Because prepaid debit cards are not credit cards, you cannot build credit together. For that, you would want to consider a Secured Card.

Insufficient bank services: Don’t expect the same features you’d get with a checking or savings account. Advantages such as access to an ATM or bank branch, online banking, or services like  wire transfers may not be available.

Whether used as a budgeting tool or as an alternate approach to bank, prepaid debit cards can help you store and spend money.