Prepaid Cards: What They Are, How They Work
Prepaid cards are a great personal finance tool for people who otherwise would not qualify for a credit card or bank account.
What are Prepaid Cards?
Prepaid cards are debit or credit cards where the user prepays before using their card to spend money. A prepaid debit card can be used to make a payment just like any other card-based payment method. A prepaid card can be swiped, or the payment can be made by entering the card number directly into a computer for purchases over the phone or online.
How Prepaid Card Work
A prepaid card must first be loaded with a starting balance by paying cash at a loading center, adding funds online from a bank account, or depositing funds automatically from your place of work. Many people use prepaid cards as a way to improve their access to safe and reliable ways to make payment for basic goods and services at the point of sale, or for charges billed monthly.
A prepaid card is not a loan. Therefore, any amount that you spend has to be backed with funds that you have already deposited into your account. Luckily, major retail chains, pharmacies, and gas stations sell many different types of prepaid credit and debit cards. You can also add funds to your balance with cash or check at the same locations. In this way, prepaid debit and credit cards are a more convenient form of banking, since you can add funds at thousands of locations. Banking branches may be far and few between, whereas pharmacies, gas stations, and grocers are on most every corner of major cities.
Prepaid debit and credit cards do come with fees. In general, average users will encounter monthly access fees plus other fees for printed statements or balance checks. You can access most features online for free, however.
