Prepaid

How to Choose a Prepaid Debit Card

You have lots of choices when it comes to picking the best prepaid card that's right for you. Here are some issues to keep in mind as you examine your options

• Fees: Prepaid debit cards are notorious for fees, so it’s important to know what you’ll be charged for and how much it will cost you. Activation fees, reloading fees, and even monthly fees are fairly standard on most cards, but the size of the fee will vary from one to another. Additionally, some cards will charge you for other activities like checking your balance or calling customer service. You might even get charged for inactivity if you don’t use your card for an extended period of time. All this information will be located somewhere on the card company’s website, so dig into the fine print before you choose a card. Even small fees add up over time.

• Features: Different cards come with different features, and these differences can help you choose the card that will be most beneficial to you. Almost any card you choose will come with standard features like online account management, but others come with additional perks like smartphone apps, a savings account that earns interest, online bill payment, and even rewards programs that offer cash back.

• Function: As prepaid debit cards have become more popular, different types of cards have been introduced to the market. Some cards that offer currency conversion are great for travelers. Other cards have hard spending limits for parents who want to give debit cards to their kids. More generic cards are for people who have poor credit or want to better control their spending. Know why you’re getting the card and the functions you need it to perform – it will be easier to pick the card that’s best for you.

Benefits: Why Use a Prepaid Debit Card

Here are some reasons that you should consider a prepaid debit card:

• You need spending limits: Most prepaid debit cards limit your spending to the amount you have loaded on the card, so you can’t spend more than you can afford. For someone who needs help controlling spending or sticking to a budget, this gives prepaid cards a clear advantage over credit cards.

• You can’t get credit: No credit is involved when you get or use a prepaid debit card. This means no credit check is required to obtain one. For people with poor credit, a debit card may be the only option available. Additionally, since you’re only spending money you already have, you can’t accumulate a balance that will then start to accumulate interest at a high rate – one of the dangers of a credit card.

• You need convenience: Prepaid debit cards are a convenient alternative to cash in the same way as a credit card. If the card you choose comes with other features like online bill payment, it can be even more convenient. Most cards offer quick and easy balance transfers as well.

Downsides: What to Watch Out For

Prepaid debit cards don’t come without a downside. Here are some of the drawbacks:

• No opportunity to build credit history: A debit card isn’t a credit card, so you can’t improve your credit history by owning or using one. For people looking to rebuild their credit history, a secured credit card specifically targeted to people with low credit may be a better option. Similarly, parents looking to help their kids build a credit history should consider a credit card as well.

• They are expensive to use: Prepaid debit cards often come with many more fees than credit cards. Most credit cards don’t charge an annual fee, and you aren’t likely to find fees for accessing customer service or inactivity either. This means – without factoring in the cost of interest that can accumulate on the outstanding balances of credit cards – that a prepaid debit card is usually more expensive to use. However, for people who are not able to get a credit card and have trouble keeping track of their money, a prepaid debit card can be less costly than bank fees and overdraft fees.

• Definite limits: One of the benefits of a debit card is that you can’t spend more than you have loaded on the card, but this can be a drawback as well. It means you have to always plan ahead, particularly when you want to make a large purchase, and know you current balance.

The most important part of choosing a prepaid debit card is the research you do before you make your decision. Know the fees and check the features of each card you’re considering – and remind yourself of them as you continue to use the cards. Skipping this step can be costly; as fees accumulate, the value of the card’s features and benefits decline.