Prepaid Cards vs Debit Cards
In the world of personal finance, there are a lot of things to consider. Today we have many services and products that we can use to save up money, spend less, or get the necessary financial injection when in need. One of those groups of products is cards, but not all of them are made equal and don’t have the same role in your financial ecosystem. Before getting a card, you need to know your needs and choose the right card type for them.
In this post, we’re going to talk about prepaid and debit cards. We’ll look at the differences, uses, and benefits that they provide.
1. Different names
It might sound obvious, but this is very important to mention so that you can get a better understanding of their differences. Prepaid cards are always referred to the same way. However, debit cards are also called “prepaid debit cards”, “payroll cards”, or “settlement cards.”
It’s important to know what this means when you come across this name to avoid getting confused. Simply put, these are ordinary prepaid cards, and there are no differences between them – only the name is different.
2. Ways they are loaded with funds
For you to use a card, it needs to be loaded with funds in one way or another. The exception is credit cards that let you spend “credit”, which is the amount you borrowed from your bank and is at your disposal.
Debit cards are linked to checking or bank accounts. In other words, when you use your debit card to buy something or withdraw money from an ATM, the amount is deducted from your accounts associated with the card.
On the other hand, prepaid cards aren’t linked to any bank account, and you have to load money into it before you can use it. Debit cards also usually allow you to spend a bit more than you currently have in your account, while prepaid cards never let you spend more than what you’ve loaded.
3. Different prepaid and debit card fees
All cards have some fees associated with them. Even though the fees vary from one card vendor to another, there are some general fees associated with each card type. Prepaid cards often include a lot of different fees, including a combination of:
- Withdrawal fees
- Inactivity fees
- Payment fees
- Balance inquiry fees
- Monthly fee fees
- Transaction fees
- Activation fees
- Reloading fees
Debit cards have fewer fees, and they are generally lower:
- Overdraft fees (the added fee you have to pay for when you exceed your account balance)
- Card replacement fees
- Monthly fees
- ATM fees (when using an ATM from another bank)
4. Usage limitations
In general, most debit cards you get from banks can be used anywhere. In other words, you can use a debit card in various stores, restaurants, websites, and so on. Even though there are prepaid cards that work similarly, they often aren’t accepted everywhere.
However, there are also a lot of prepaid cards that are linked to specific brands or stores. For example, many tech stores offer prepaid cards that you can only use in their stores and nowhere else same like store catalog cards. That’s why these cards are often compared to gift cards that work similarly.
5. Different requirements
All cards have certain requirements set by the providers that you need to meet before you can get one. In general, debit cards have stricter requirements, as they need to be linked with a bank account. In other words, users first need to be eligible to open up a bank account.
However, even after they’ve done this, they can’t acquire a debit card right away. They need to get approval from the bank and require certain personal and financial information, including legal ID, address, name, proof of employment, etc.
Prepaid cards, on the other hand, only require basic personal information. That’s because the providers don’t have any risk associated with the use of the card.
Prepaid and Debit CardsTable
Both of these card types have their own advantages and drawbacks. You need to analyze your needs and your current financial situation to choose the right option. Take the time to do your research and make sure to compare cards from different vendors to see what conditions they offer.