How Do Prepaid Debit Cards Work?

A prepaid debit card looks a lot like a gift card: It allows you to spend any amount of money stored on the card. Once the balance is depleted, you can reload the card online or at an ATM, participating store or other physical location. Prepaid debit cards are issued by banks and marketed by major credit card companies, including Visa, MasterCard, Discover and American Express.

Key points to remember

  • A prepaid debit card can be a useful alternative to cash.
  • Prepaid debit cards are an option for people who don’t have a credit card or don’t have access to a regular debit card linked to a bank account.
  • There are many fees associated with prepaid debit cards, so it’s important to shop around for the best deal.

Understanding Prepaid Debit Cards

A prepaid debit card is equivalent to cash, and sometimes better:

  • It is a safe way to carry money, unlike, for example, a wad of paper money. Prepaid cards also come with some consumer protections that cash does not.
  • A prepaid debit card can be used for online purchases.
  • It can make a gift more attractive than cash.

Anyone who wants to stick to a strict budget or finds it difficult to manage their credit cards can also consider using a prepaid debit card.

You may use a prepaid debit card for any transaction for which you could otherwise use a regular credit card or debit card. In many cases, the recipient of your payment may not even know that the card is prepaid.

Some employers pay their workers with prepaid debit cards called pay cards (which can be useful if the person does not have a bank account or direct deposit). Many government benefits are also available through prepaid debit cards, including Social Security.

Prepaid Debit Cards vs Regular Debit Cards

With a regular debit card, the amount of money you can spend is linked to the amount you have in the checking account it is linked to. So you need to have a bank account to use a regular debit card, whereas you don’t with a prepaid debit card. With a regular debit card, the amount of money you have will also fluctuate from day to day as money flows in and out of your checking account. With a prepaid debit card, you have a fixed amount of money to spend, which decreases as you spend it and only increases as you top up the card.

The disadvantages of prepaid debit cards

Prepaid debit cards can come with an assortment of fees that will eat into your cash balance. These may include monthly fees, transaction fees, ATM fees, reload fees, foreign transaction fees, etc. You may even be charged a fee to check your card balance.

Employees have the legal right to refuse to be paid with a payroll card because the charges will reduce their take home pay.

Buy a prepaid debit card

If you are buy a prepaid debit card, pay special attention to his fees. Also consider comfort. For example, if the card can be used for free at an ATM (as most top cards are), what size network of ATMs will you have access to and is there one near you? or your job?


If your goal is to restore your credit rating, consider a secured credit card instead of a prepaid debit card.

An alternative to a prepaid debit card

If the reason you want a prepaid debit card is because you have a bad credit history or no credit history and can’t get a conventional credit card, you might consider a secure credit card In place. Secured cards are easier to get because they require you to post a refundable security deposit which acts as security for the lender.

The advantage of a secure credit card is that your monthly payments can be reported to the three major credit bureaus and help build your credit history. Debit cards, whether prepaid or regular, do not report transactions to the credit bureaus and will not do anything to improve your credit.

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