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All About Prepaid Credit and Debit Cards

What are Prepaid Credit and Debit Cards?

Prepaid credit and debit cards are cards that people load with money and then use instead for their debit or credit card processing needs. Funds are usually transferred onto the cards through direct deposit, funds transfers from bank accounts or by paying certain retailers at the cash register. Once the card is loaded, people can use it for their debit or credit card processing just about anywhere regular credit and debit cards are accepted. Once the funds on the card have been spent, it must be reloaded before it can be used again. These cards can be used by individuals or for merchant accounts.

What are the Advantages of Using Prepaid Credit and Debit Cards?

Prepaid credit and debit cards offer users several advantages. They are safer than walking around with a large amount of cash. They help people stick to their budgets by not allowing people to overdraft their accounts or run up more expenses on credit than they can afford. They are great for teenagers, who might not yet be ready to handle the responsibilities of a regular credit card. They are also great for people with poor credit who may not be able to get a regular credit card. They also allow employees to make purchases for merchant accounts without handing them sensitive bank account information.

What are the Disadvantages of Using Prepaid Credit and Debit Cards?

Prepaid credit and debit cards do come with a few disadvantages, however. The money on the cards may or may not be protected by the FDIC the way money kept in bank accounts would be. Card users are often charged several fees for everything from activating a card, transferring money onto a card or finding out the balance of a card. Because prepaid cards are not required to list all of the fees on the packaging, card companies may not be forthcoming about all of their fees. Lastly, prepaid cards do not report to credit companies the way regular and secured credit cards do and will not help people gain or improve their credit in any way.

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