Prepaid Cards: Advantages and Disadvantages
We are fast becoming a prepaid nation as the world is catching on to this semi new trend. One of the first places to offer this card is the United States of America and I am afraid that the rest of the world is just playing catch up.
Take for instance my own little country. Many people have no idea what a prepaid card is. A couple of years ago I went into my bank and asked if they had a prepaid credit card to offer and was told "yes", but alas, to my chagrin I was introduced to a "secured" credit card instead. When I explained what a prepaid card was, the customer service rep had never heard of it.
To this date only two banks now offer the prepaid card and both have implemented the system less than one year now.
What is a prepaid card?
As the name suggests, a prepaid card is a card where the funds are pre-loaded. You only spend what you have placed on the card. The card functions like a debit card and you don't owe anything to the bank and you do not accrue interest on money soent. So basically you are spending what's yours.
With a credit card you spend money that the bank loans to you which gathers interest so you are always owing the bank. WIth the prepaid card the bank owes you until you spend the money.
There are different types of prepaid cards which are listed below.
Adavngates of the relaodable prepaid card
- Spend only what you put on
- Never have to worry about interest
- Never have to worry about debt
- Your money is protected by the FDIC
- Use online, at ATMs or POS worldwide
- Most cards are free initially
- Use card to withdraw funds from online payment system if card distributor offers the service
- Receive and send money to and from other card holders
- Some cards offer a money remittance service
Disadvantages of the reloadable prepaid cards
- Spend limit is your limit
- No interest on moneys loaded
- Is not a bank account or regular debit card
- Must pay a monthly maintenance fee and usage fee
- Some cards are not free initially and must be purchased
- May have difficulty withdrawing money if bank account details not provided
Reloadable Prepaid Cards
The reloadable prepaid card is by far the most popular prepaid card in existence. This card is like a debit card and you can either get it straight from your US or UK bank or a third party dealer. This card operates as a debit card and does not come with a bank account as opposed to a regular debit card.
The regular debit card has an account of its own while the prepaid debit card utilizes a single bank account for the business that owns the card. The business then distributes the card to individuals who, when they load their card, the money goes to that primary account.
In order to acquire one of these cards the issuing company needs to, in accordance with the Patriot Act, verify your identity. In so doing they would need to collect information that they will store in their database. Such information may include your SSN, driver's license, national ID, passport, address and telephone numbers. The information is required because a bank has to issue the card to the dealer, so each card needs to be verified. Your name will also be engraved on your card unless otherwise stipulated by you.
Usually an online account is provided for the card holder (the company still owns the card), where you can see your account balance, transactions, fees and general account information.
There are some advantages and disadvantages to having one of these cards. I myself have two. But beware, you may face difficulties withdrawing money from some online payment systems.
There are many different reloadable prepaid cards on the market. Below are just a few that I have seen and trust. I suggest when looking for a prepaid card make sure you know the issuing bank. Read the terms of service of the third party issuer, check out their fees, loading times, their payment partners (to know where you can collect money).
- Rush Card
- Netspend Visa/Mastercard
- Payoneer Mastercard
- Green Dot Visa
- Paypal prepaid Mastercard
- Upside Visa
- Pink Ace Elite (a Netspend card)
- Account Now
These are just a few of the cards and you may be familiar with them or know of many more.
Advantages and Disadvantages of the store value cards
- No personal info needed
- Easy to get
- Use like a debit card
- Ideal for gifts and teens
- Not reloadable
- Limited spending
- Limited use
- Not insured
Store Value or Gift Cards
These prepaid cards are not reloadable and you have to keep repurchasing cards as the funds run out.
You can get these cards from many stores and some banks. They are unlike a gift certificate where you can only spend the certificate at the store it was purchased you can use the gift card or store value cards at almost everywhere online, at ATMs or POS. But before you go shopping you must make sure the card bears the "Cirrus" sign.
If the card does not bear this sign it is likely that you cannot use it anywhere but at the store it was bought.
A good store value card would also be associated with Visa, Master, American Express or Discover. Store value cards do not have your name engraved and no personal information is required for purchase.
The VCC or Virtual Credit Card
This is actually a prepaid system that works like a debit card. It has no relation to a credit card and you only spend what you own.
The virtual credit card exist only online and you get a number and PIN so you can purchase stuff online and withdraw money from your bank, online payment systems or receive and send money.
The same rules apply as the reloadable prepaid card above except that you do not get an actual plastic to keep.
- Can spend anywhere online
- Cannot be used at ATMs or POS
- No actual card to keep