How Do Prepaid Debit Cards Work?

Written by Kim PinnelliUpdated: 3rd Nov 2022
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Whether you don’t have a bank account, or you can’t budget to save your life, a prepaid debit card may be just what you need.

Find out how they work, who they are best for, and what you should consider before getting one.

What Is a Prepaid Debit Card?

A prepaid debit card is an alternative to a bank account. It allows you to store funds on it and spend them as you would out of a bank account but without the actual account.

Most prepaid debit cards are Visa or Mastercard debit cards, allowing you to use them where either network is accepted.

How Do Prepaid Debit Cards Work?

You can buy prepaid debit cards at your local big box stores, local banks, or online.

When you buy a prepaid debit card, it’s usually backed by a bank, so you ‘essentially’ have an account at a bank without really having one.

There isn’t a credit check or any qualifying factors needed to get the prepaid debit card.

As long as you have funds to put on the card and keep up with the monthly fees, you can use the card like you would a credit card, pay bills, buy groceries, or go to the movies.

Prepaid Debit Cards – Facts You Need to Know

  • Expiration Dates: Like credit cards, prepaid debit cards expire. If it expires, you don’t lose the money you loaded on the account, but you won’t be able to make purchases anywhere. Before your card expires, contact the company that runs it to ask for a reissued card.
  • Watch Out for Fees: Read the fine print on the prepaid debit card’s fee arrangement. Most cards charge a monthly fee plus per-transaction fees for different transactions. Know the total cost and make sure it’s worth it. Some cards have fixed fees, and others have a pay-as-you-go arrangement.
  • Various Protections: Your card may have FDIC insurance coverage. This means if the bank closes, you’ll still get your money. FDIC insurance protects your account up to $250,000. Not all cards have FDIC insurance, so read the fine print.
  • Does Not Impact Credit Score: You don’t need great credit to get a prepaid debit card because card issuers don’t check your credit. Having a card also doesn’t affect your credit score. No one reports it to the credit bureau, so it doesn’t help or hurt your credit score.
  • No Other Banking Services Provided: Unlike a bank account, you won’t get any other banking services with your prepaid card. You don’t have an account at the bank. You just have a prepaid card (sort of like a gift card) with a balance that you can use anywhere Visa or Mastercard is accepted.
  • ATM Access: You can access your funds at any ATM, but it’s always best to know the bank’s network to avoid out-of-network ATM fees, which usually run around $3 a transaction.

4 Reason Why You Should Get a Debit Card

#1. Great for Families

You can use your prepaid debit card to teach your kids about money without worrying about them carrying your credit card or a debit card tied to your checking account.

You can usually get secondary cards for no charge, giving access to other family members as they learn about the responsibility of using a debit card.

#2. Easy to Use & Set-Up

You don’t need a bank account to get a prepaid debit card, and they’re easy to set up. If you buy it online, you can usually load it online too.

Most cards allow you to set up Direct Deposit, electronically transfer funds, and reload at various retail locations (sometimes for a fee).

#3. Helps You Budget

If you always overspend, a prepaid debit card can keep you on track. You can’t spend what you don’t have, so it’s a great wake-up call to get you back on budget.

#4. No Bank Account Required to Get a Prepaid Card

You don’t need a bank account, great credit, or any other qualifying factors. If you can fund the card, you can have it and use the funds as you need.

Once the funds are gone, they’re gone. There isn’t any credit or way to overdraft your account.

>> More: Best Online Banks

What Is the Difference Between Prepaid Cards and Credit Cards?

Credit cards are a loan. When you charge an item, you borrow the money from the credit card company to pay for it. You have 25 days to pay it back with no interest.

If you don’t pay the balance in full, it accrues interest, and you must make a minimum payment. This increases the cost of the item you bought, but you can make the purchase without worrying about how much money you have.

Prepaid cards only allow you to purchase with the amount of funds you have. You don’t borrow money, and you don’t pay interest. It’s a great way to keep you accountable and out of debt.

Prepaid Cards We Like

#1. Netspend Prepaid Visa Card

The Netspend Prepaid Visa Card has a large network of 130,000 reloadable locations, the ability to set up Direct Deposit, and you can electronically transfer funds.

You can earn cash back on purchases made at certain retailers with their cashback program, and you can even earn referral fees of $20 for every friend or family member you refer.

>> More: Netspend Prepaid Visa Card Review

#2. Brinks Prepaid Mastercard

The Brinks Prepaid Mastercard costs $9.95 a month, or you can pay as you go, paying per transaction.

You can load the card using Direct Deposit, transferring money from another Brinks cardholder, or at one of the 130,000 Netspend reloading centers.

Like most prepaid cards, you get access to your Direct Deposits up to 2 days early. You can also earn points for all signature purchase transactions, which you can redeem for money back. With the mobile app and Anytime Alerts, you can know what’s going on with your account 24/7.

>> More: Brink’s Prepaid Mastercard Review

#3. FamZoo Prepaid Card

If you’re trying to teach your kids about money, the FamZoo Prepaid Card is a great start. You can store money on multiple cards within the family, easily transfer funds, have visibility and parental controls, and track purchases.

FamZoo costs $5.99 a month, but you can prepay for 6, 12, or 24 months and get a discount. The FamZoo prepaid card looks just like a Mastercard, so it helps your kids learn how to properly use their money and even offers tools that show kids how to save, spend, and donate.

>> More: FamZoo Prepaid Card Review

Frequently Asked Questions

Are Prepaid Debit Cards Safe to Use?

As long as the prepaid debit card you choose is FDIC insured, it’s safe. Always read the fine print and find out what liability you’d have if your card was lost or stolen.

Just like no two bank accounts are created equal, neither are prepaid debit cards. Read the fine print and know what protections you have before using a card.

How Much Money Can You Put on a Prepaid Visa Card?

Every prepaid card is different, but most cards allow a maximum of $15,000. Some cards have much lower limits regarding how much you can load or withdraw in a day. Always ask about the limits before signing up for a card.

Bottom Line: How Do Prepaid Debit Cards Work?

Prepaid debit cards are a great way to stay on a budget, avoid overspending, and to protect your money.

They’re especially helpful if you don’t have a bank account or don’t want to use your credit card or debit card attached to your checking account.

Just make sure your card has FDIC insurance, and the brand you use takes security seriously, so your identity and money are safe.

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.