Over the years, the best prepaid cards have experienced a massive growth explosion. In fact, a Pew survey indicated that usage of prepaid cards rose by as much as 50 percent between 2012 and 2014.
Since they were first introduced, thebest prepaid cards have evolved into a convenient payment method for those who don’t have access to banks. It has also become a great alternative to traditional bank accounts among millennials.
What are prepaid cards?
Prepaid cards look very similar to debit and credit cards. However, unlike debit cards, it is not connected to any bank account and it needs to be preloaded with money before it can be used. Also, unlike credit cards, you will not be “borrowing” money from the issuer. Instead, you will be using your very own money, the one you preloaded in the card.
Gift cards are also considered prepaid cards. However, they are only designed for one time use. Reloadable prepaid cards on the other hand are designed for continuous use, given of course that there is money available on the card. The good thing is there are several convenient ways to load money onto the prepaid card.
How are prepaid cards used?
Prepaid cards can be used for merchant as well as online purchases. Oftentimes, prepaid cards are also affiliated with established payment networks. That being said, the cards are often honoured and accepted in places associated with he payment networks.
Each time the prepaid card is used, the amount of the purchase or withdrawal will be deducted from the balance that’s available on the card. In other words, you can’t spend more than the amount that’s available in the card. If the amount available is not sufficient to cover the expenses, the transaction will be declined.
Unknown to many, prepaid cards can also be used for ATM withdrawals and not just purchase transactions. To use the prepaid card for ATM withdrawals, a personal identification number (PIN) is needed.
How are prepaid cards different from credit cards?
While both cards can be used for purchase transactions and ATM withdrawals, they have several distinct differences. For instance, a prepaid card will require users to preload money on the account before it can be used while a credit card will allow you to “borrow” money for purchase transactions which you need to repay at an agreed time.
Since credit cards are considered a loan, the statement balance and the credit history are reported to major consumer credit bureaus. Transactions using the prepaid card on the other hand will not be reported.
What key things should you consider when choosing a prepaid card?
When looking for a prepaid card, you need to first identify how you will use it. For instance, do you intend to reload it through direct deposits or through reload networks? If you pick the latter, then it would be wise to pick a card with a reload network that’s convenient for you to go to. When choosing a prepaid card, you also need to consider if you’re going to use it for online payments and ATM withdrawals.
Another key thing you need to look into is the fees and charges. In line with this, you also need to consider how you intend to use the card. Understandably, you’d want to keep your fee payments to a minimum. That being said, look for prepaid cards that will charge you less for transactions you frequently do.
For instance, if you intend to use your cards for ATM withdrawals, consider it best to opt for a prepaid card that waives ATM fees when the cards are used at certain networks. Other prepaid card issuers will also waive monthly fees for cardholders who load a specific amount monthly.