You might be wondering if a prepaid card is right for you in 2023. If you’re not sure if a prepaid card is right for you, then read this article to the end.
Before I reveal to you my own opinion on a prepaid card, let us look at some important things like what prepaid is used for, how to get a prepaid card, what is the cost of a prepaid card, etc.
What Is a Prepaid Card?
According To Investopedia. A prepaid card can be considered a type of debit card that is similar to a reloadable gift card or any store-value card. With the prepaid card, you load it with cash and use it anywhere you can find card networks such as Mastercard, Visa, Discover, or even American Express.
The prepaid card is good for those who don’t have a bank account but still wish to transact like every other customer of a traditional or online bank. Some individuals even prefer the prepaid card to their bank due to the fact that it helps them cultivate a good money-spending habit.
In many cases, when you try to get a prepaid card for yourself or your business, the card issuer may charge a setup, reloading, and even purchase fee- in addition to a fixed monthly fee. This is why it is always advisable to know these charges before buying those cards.
How Does the Prepaid Card Work?
As I have mentioned above, for you to use a prepaid card, you’ll need to buy it from either a supermarket, convenience store, or many other outlets, as well as directly from the companies that issue them.
The card does not require any form of credit check to get one because you can only spend what you have on the card. Once you have exhausted your balance, you’ll need to refund the card if you still wish to use it for your shopping.
The prepaid card can be gotten even with a poor credit history because credit history is not a criterion for getting the card neither does a credit score required to get one. If you’re wondering if the card can be used to improve your credit score, know that it is not possible because the card is in no way connected with the credit bureaus.
You need to load the card using either an ATM or a participating store or through a deposit. The prepaid card has an account which comes with a routing number, which makes it possible to arrange for a direct deposit of your paycheck or government benefits.
After that, you use your card much the same as you would a regular debit or credit card. 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.
When your balance is depleted, or at any other time you wish, you can reload the card with additional money.
Unlike a regular debit card, you don’t need a bank account to have a prepaid debit card. For that reason, these cards are widely used by unbanked adults who either can’t get or don’t want a traditional bank account but sometimes need an alternative to paying with cash. With cash-free transactions becoming more ubiquitous, it is difficult to avoid carrying some kind of card today.
Advantages Of Having A Prepaid Card
The prepaid card comes with a lot of advantages which makes it amazing for daily transactions. As I have mentioned before, the card works like the usual debit card you know, but the advantages that come with a prepaid card are more than the debit card.
Below are some of the advantages of the prepaid card:
- It Helps to Avoid Overdraft Fee
- The Card Helps Preventing Overspending
- The Card Helps to Limit Losses
- It Helps in Overcoming Poor Banking History
- It Helps In Educating Kids On Financial Discipline
- Earn Some Amazing Rewards
It Helps To Avoid Overdraft Fee
In the United States today, an average overdraft fee is around $33 per transaction. A lot of banks are known for charging customers penalty fees when they overdraw a checking account.
Some of the banks are known to allow customers to turn off overdraft protection. in this case, your debit card will simply be refused if you don’t have enough money to cover a transaction, but it may be easier still to get one of the many prepaid cards that never charge these fees at all.
The Card Helps In Preventing Overspending
Unlike the credit card that puts you in debt, the prepaid card helps you avoid being in debt because you can’t spend more than the amount already deposited in the prepaid card account. The card is a great unique budgeting account in which you can put in what you need to spend only even though you already have a checking account.
With your prepaid card, at the end of every month, you can fund it with a certain amount that you’ll use such as dining, paying for flight tickets, shopping at the mall etc.
The Card Heps To Limit Losses
The prepaid card is great for shopping online and avoiding being a victim of online fraud. The card is great for limiting loss in any way, most especially if the card is compromised, you can only lose what you have in the account, unlike the debit card that puts your entire checking account at risk.
One great thing about the card is the Electronic Fund Transfer Act which protects the card from any unauthorized use of your fund in the account. When your card is illegally used, the card issuer will help in investigating the unauthorized transaction and reimburse you for the unauthorized charges or debit so 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.
It Helps In Overcoming Poor Banking History
Unpaid fees from one of the previous banks could be a real problem for an individual when trying to open a checking account with another bank or financial institution. This happens because banks ask for bank history reports before allowing you to successfully open a bank account with them.
But with a prepaid card, you don’t need any of that to get one for yourself.
It Helps In Educating Kids On Financial Discipline
The prepaid card has become pretty popular among high school students or college students as a result of parents using them to give their kids allowances for their up keeps while they are schooling.
While they use the card, it teaches them how to manage money and spend it properly while they’re in school.
Earn Some Amazing Rewards
Many of these prepaid cards come with incredible rewards programs just like a credit card. Some of them offer unlimited cash backs of 1% cash on all purchases. A good example of such a card is the American Express Serve Cash Back card.
If you’re interested in cash backs on prepaid cards, I’ll advise you to use an American Express Serve Cash Back card and Walmart MoneyCard
The Pros and Cons of a Prepaid Card
Pros Of Prepaid Card
- Helps kids understand financial discipline
- Limits liability in case of fraud
- The card enables you in avoiding overdraft fees.
- The card prevents unnecessary overspending
- Does not need a credit score to apply for the card
Cons Of Prepaid Card
- High transaction fees
- Does not build a credit history
Disadvantages Of Having A Prepaid Card
The prepaid card has a few disadvantages. Below are some major disadvantages of the prepaid card
- No credit Reporting
- Higher fees
If you’re looking to control your spending and properly manage your finance, then a prepaid card will be the best option for you.
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