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Prepaid cards were first introduced to use as gifts and to serve the members of the "unbanked" community who needed an alternative to traditional banks for paying bills and making online purchases. Their popularity exploded, with competition driving card companies to include extra benefits and features. New card companies are popping up all the time, and many traditional banks and digital finance platforms are now offering their own prepaid cards. With all the cards available, it's hard to know what features to look for and which prepaid card company is the best. Below, we break down what to look for to determine the best prepaid card companies in 2023.

How do prepaid cards work?

Prepaid cards come with a Visa, Mastercard, American Express, or Discover logo and operate similar to a debit card. However, they aren't connected to a traditional bank account. You can make purchases with prepaid cards online or in person, up to the amount preloaded on the card. Many cards allow funding through direct deposits, such as payroll checks. Most prepaid debit cards are reloadable, so you can add additional funds as needed through various methods, such as transfers and cash reloads.

User u/blablahblah on reddit.com offers a simple, first-person look into how prepaid cards work

“It's essentially just a debit card, except you can set it up through a store like Walmart instead of going to a bank and signing up for an account- you buy a card, load money on it, and then can spend it at any store that accepts the corresponding card type (Visa, MasterCard, Discover, or AmEx).”

Prepaid cards offer a number of advantages over traditional bank debit cards. Because most prepaid cards don't allow purchases that are more than what's available on the card, you can avoid having pricey overdraft fees. Additionally, since the prepaid card isn't tied to your bank account, you can safely make online purchases without worrying about your bank card number falling into the wrong hands. Because the available funds are limited, prepaid cards are a great way to send money to minor children without having to give them cash in person. People who aren't able to open a traditional bank account can use prepaid cards exclusively for all their banking needs.

Types of prepaid cards and uses

Prepaid cards come in various types, each with its own primary benefit. You can have just one card or multiple prepaid cards, all at the same time. There's no credit check or qualifying process, so the choice of which cards to use is up to you.

  • General purpose cards: These cards can be used anywhere that accepts the card's network, both in-store and online.
  • Online shopping prepaid cards for safety and privacy: You can use a prepaid card strictly for all your online purchases to keep your debit card information off the web. Some online spending cards are virtual, so there isn't a physical card to carry.
  • Budgeting: While many cards have a budgeting feature, some cards are specifically designed for people trying to budget.
  • Teen prepaid cards to teach financial responsibility: A number of prepaid cards allow you to add extra cards for minors, transfer funds, and set spending limits. Many of these cards offer parental controls through an app.
  • Prepaid cards for specific purposes: Prepaid gaming cards allow you to make in-game purchases without connecting directly to your bank account. Some cards have cash back rewards on general purchases that you can use toward gaming. Prepaid cards for sports and other hobbies have similar features.
  • Payroll card: You may receive your paycheck as a direct deposit on a company-issued payroll prepaid card.
  • Government benefit card: Many government benefits, such as social security payments and stimulus funds, are paid through prepaid cards. In most cases, these cards are only reloadable by the government.
  • Gift card: Gift cards are usually for a specific store or network of stores and are typically not reloadable. These types of cards typically don't include a VISA, Mastercard, American Express or Discover logo.
  • Travel prepaid cards and advantages for travelers: Often made specifically for international travel, the funds on prepaid travel cards are automatically converted to the correct currency as you make a purchase.

The qualities of a great prepaid card company

A great prepaid card company isn't just great in one area. You have to look at the whole picture. One card may have many advantageous features, but it also may have a large number of hidden fees. Another card may have almost no fees but isn't accepted in as many places. When looking into prepaid card companies, you want to pay attention to fees, network acceptance, reload options, ATM accessibility, security protections, benefits, and features.

Fees and charges

Fees are the biggest downside to prepaid cards. Some cards are upfront about their fees, while others aren't so forthcoming. Make sure you do your research ahead of time to find out what fees a card company charges. Here are the most common fees you'll find with prepaid cards:

  • Activation fee: Some cards charge a fee to activate the card.
  • Monthly fees: Many prepaid cards charge a monthly fee, but some don't.
  • Purchase fee (per purchase): Some cards that don't charge a monthly fee charge a small fee when you purchase something instead. This can be a flat rate or a percentage of the sale. Other cards don't charge a monthly fee or a purchase fee.
  • Cash reload fees: You may be charged a flat rate for every cash reload.
  • Declined transaction fee: If you don't have enough money in your account and the purchase declines, you may be charged a fee.
  • Overdraft fee: Most prepaid cards don't let you spend past the amount you have available, so overdraft fees shouldn't be a problem. However, there are some cards that allow your account to go into the negative and do charge overdraft fees.
  • Bill-pay fee: Bill pay may be a free feature or there may be a charge, depending on the card.
  • Transfer fee: Some cards charge for certain card-to-card transfers, but not others.
  • ATM withdrawal: You may have to pay a fee for out-of-network ATM withdrawals. Some cards are partners with large ATM networks that don't charge fees, so you may be able to avoid out-of-network ATMs altogether. Other cards charge for any ATM usage.
  • ATM balance inquiry: Some cards charge a small fee if you check your balance at an ATM.
  • Currency conversion fee: Currency conversion fees can apply to international funds transfers and purchases made during international travel.
  • Customer service fee: Some cards charge for the use of their customer service.
  • Replacement card fee: If your card is lost, damaged, or stolen, you may have to pay a replacement fee.
  • Inactivity fee: If you stop using your card, you may be charged an inactivity fee after a predetermined period.

Card acceptance and network

Most prepaid cards are issued through one of the four major credit card networks: Visa, MasterCard, American Express, and Discover. While most places accept cards from all four networks, there are some that don't accept American Express or Discover. If you plan on using your prepaid card often with a particular vendor, make sure you find a prepaid card they accept.

Reload options and accessibility

The methods available to put money onto a prepaid card are just as important as being able to reloadable it in the first place. If you can only load it with cash at one location, it wouldn't be very convenient. Fortunately, there are many ways to load funds onto most cards.

  • Cash deposits at designated locations: This can range from only one retailer to thousands.
  • Direct deposit: Many prepaid cards include a routing number and account number for direct deposits.
  • Mobile check deposit: You may be able to take a photo of a check to make a deposit, just as you would for a traditional bank.
  • Debit card transfer: If you have a traditional bank account, you can transfer funds to some prepaid cards with your bank debit card.
  • Card-to-card transfer: Funds can also be transferred from credit cards.
  • Bank account transfer: You can send funds directly from your bank account with some cards.
  • Digital finance platform transfer (e.g., PayPal, Venmo, Cash App, etc.): You may be able to add funds to your prepaid card from any number of digital finance platforms.

While it may seem ironic that you would need to withdraw cash from a prepaid card, many people need cash after funding their cards with direct deposits. Some cards are part of networks made up of thousands of ATMs that allow free withdrawals, while others require you to pay a fee for any ATM use. Some ATMs, especially those at traditional bank branches, don't recognize all prepaid cards.

Cardholder protections and security features

While many federal protections that cover traditional banks don't apply to prepaid cards, card companies can still offer them, so consumers can feel secure. Make sure to check for important consumer protections, such as the following:

  • Purchase protection: Many prepaid cards offer purchase protection to cover the cost of theft or damage for a defined period after a purchase.
  • Unauthorized transactions: While the Fair Credit Billing Act doesn't cover prepaid cards, many card companies still have processes in place to dispute unauthorized charges. A prepaid card company may even freeze your card temporarily if they detect any suspicious activity, just like a traditional bank would.
  • FDIC or NCUSIF insurance: The same protection you would receive against the loss of funds at a traditional bank can apply to your balance on a prepaid card if your card meets certain requirements.
  • Advanced security features: You can find prepaid cards with biometric authentication, such as the Elite Influential reloadable prepaid card offered by MiNiT. However, advanced security features such as this are rare.

Additional features and benefits

Prepaid cards have evolved far beyond their role as an alternative to traditional banking. Many cards include extra features, making them even more convenient and appealing.

  • Budgeting: Many cards include an app-based budgeting feature. You can set savings or budgeting goals or earmark funds to separate them into various budget categories.
  • Bill pay: Set up automatic payments for bills, such as utilities. The card issuer pays the bill with a digital check drawn against the prepaid card account.
  • Recurring payments: Most prepaid cards can be used for recurring payments, as long as the vendor doesn't use Automated Clearing House (ACH) payments. The routing number and account number assigned to a prepaid card can only accept deposits and can't be used for payments. However, if your prepaid card is linked to a checking account, you may still be able to use it to make recurring payments to a biller that uses ACH.
  • Cash-back rewards: Some prepaid cards offer cash back on purchases, but the benefit is usually offset by monthly fees and may even have an annual cap.
  • Additional cards for other account users: Many prepaid cards offer the ability to add additional users to access funds in one account, each with their own personalized card.
  • Parental controls: A number of prepaid cards allow you to add extra cards for minors, transfer funds, and set spending limits. Many of these cards offer parental controls through an app.
  • Linked interest-earning savings account: Several prepaid cards pay interest, usually through a linked savings account. You may need to maintain a minimum balance to qualify for interest earnings.
  • Roadside assistance: For cards that offer roadside assistance, the dispatch service is free, but fees typically apply for any services used.

How to compare prepaid cards and what to look for

You'll find your ideal prepaid card company by matching their card features to your needs. If you're on a tight budget or fixed income, you might be mostly concerned about avoiding fees. However, if you plan to have your paycheck deposited and frequently need to withdraw cash, you may care more about ATM locations and access. A card that offers cash-back rewards could be the best option for someone who plans to make a large number of online purchases but wants the bank account protection a prepaid card offers. For parents, the ability to transfer funds on the fly to teens or college students might outweigh all other considerations. Whether a prepaid card company is right for you depends on how you plan to use the card and what features will benefit you the most.

Comparison with other payment types

Although prepaid cards carry major network logos, such as Visa and MasterCard, and allow you to make purchases, they're still distinct from other payment types.

Prepaid cards vs debit cards

Debit cards are issued by a bank and tied to a traditional bank account. When you make a purchase with a debit card, the charge is debited from your bank account balance. If your funds are less than the purchase, your account can go into the negative. Most banks will charge an overdraft fee if the account isn't brought back into the positive before the pending charge is posted. Overdraft fees can be very high, typically about $35. Once the overdraft fee is applied, your account will go even further into the negative, which may cause the next posted payment to overdraft. If too many pending payments post while your account is in the negative, you may end up with hundreds of dollars in overdraft charges. This won't typically happen with prepaid cards because the purchase will usually decline if you don't have enough funds available. Some cards allow some purchases, gas for example, to go into the negative.

Prepaid cards vs credit cards

Credit cards allow you to borrow money against a line of credit to make purchases. The total amount charged during a billing cycle is sent to you in the form of a bill. If you pay the bill in full on time, you won't pay any interest. However, you have the option to pay less, down to the minimum required payment, and leave the rest of the balance subject to interest charges. You need a credit check to qualify for most credit cards, with the lowest interest rates typically requiring the highest credit score. While securing a credit card and making regular payments can help improve your credit score, paying more than 30 days late or using up too much of your available credit can bring it down. Prepaid cards don't require a credit check and using them doesn't affect your credit.

Prepaid cards vs traditional banking

Traditional banks usually do a credit check before allowing you to open an account. If you have bad credit, or you've had issues with a previous traditional bank account, and it's been reported to an agency such as ChexSystems, you may not qualify for a traditional bank account. Anyone can qualify for a prepaid card, regardless of their previous banking history.

Finding the prepaid card company that’s right for you

Regardless of any expert recommendations, you're the best person to determine which prepaid card company is right for you. Now that you know what features and benefits are available, you just need to look at which ones matter most to you. However, you don't have to decide on just one card. You could have one general purpose card for one reason, and then a second card with different features for another. Whatever route you go, make sure you take a look at the fees, network acceptance, reload options, security protections, benefits, and features offered by any prepaid card company you're considering before making a decision.

Frequently Asked Questions

Are prepaid cards a workable alternative to a checking account?

Prepaid cards can be obtained even with a bad credit score, and some newer prepaid card providers (like Card.com) provide a routing number and account number for direct deposits.

Are there any prepaid cards without fees?

Even if a card has no monthly, transaction, or loading fees, you may still have to pay for ATM use. However, some cards, such as the American Express Bluebird card, can be used without having to pay any fees, including in-network ATM use. However, even with this card, fees may apply to transactions made on subaccounts.

Can I get a prepaid card without a bank account?

Since prepaid cards operate without connection to a traditional bank account, anyone can get a prepaid card.

Where can I buy prepaid cards?

Prepaid cards are available at retailers ranging from big box to dollar stores. Gas stations, convenience stores, and drug stores may also sell them. Many banks offer them at their local branches, and you may also purchase them online.

Do prepaid cards work with apps like Zelle?

Only Visa or Mastercard prepaid cards from financial institutions in the Zelle Network will work with Zelle. For example, the SmartAccess cards are associated with PNC Bank, so the Zelle app accepts them. However, many of the accepted cards are being discontinued and may not be available for new account holders. Other digital finance platforms accept prepaid cards. You may want to check with your preferred platform to see what cards they accept.

User u/jerontion ran into an issue when trying to use a prepaid Visa card on the Venmo app:

“I registered a visa gift card to venmo. When attempting to send a friend money using the card balance, it didn't work, only my bank acct did. Both cards linked and show as payment options, but one gives an error.” Others users in the comments related to the post and mentioned that only some cards work with these types of apps.

Do prepaid cards build credit?

Activity from prepaid debit cards isn't reported to the credit bureaus, so they won't affect your credit score.

Can prepaid cards be linked to multiple accounts for budgeting purposes?

Prepaid cards aren't linked directly to a traditional bank account the way a bank-issued debit card is, so they can't be linked to multiple bank accounts. However, many cards have budgeting features included.

Can prepaid cards be used for peer-to-peer transfers or sending money internationally?

You can use prepaid cards to fund third-party providers that offer international and domestic transfers. Not all cards are accepted by all providers.

Can prepaid cards be customized with personalized designs or images?

Many prepaid card issuers allow you to personalize your card with your own custom image.

Written by:

Andy Chang

•

Founder of TheCreditReview

Edited by:

Andy Chang

•

Founder of TheCreditReview