Prepaid Debit Cards FAQ

Posted on January 31, 2010
Filed Under Prepaid Debit Cards

There are a lot of questions that surround the use of prepaid debit cards. For instance, when people are first introduced to prepaid cards they usually ask how they differ from normal credit cards and what kinds of benefits they have. But soon after that come the questions about how to use them, how to reload them, and what kind of special features or personalized touches they carry with them.

Reloadable debit cards have been around for some time now but they just haven’t been part of the financial mainstream. People hear a lot about credit cards but not so much about debit cards that are prepaid. So most people just haven’t been exposed to them. Let’s try to clear up some of the questions.

What’s the Definition of a Prepaid Debit Card?
At its core, a prepaid debit card is a plastic card that acts as an electronic wallet. It stores your cash (which you’ve pre-loaded) and lets you purchase items exactly as you would with a normal credit card. That means you can buy things in retail stores, online, or you can withdraw cash from ATM machines.

They differ from credit cards in that they are pre-loaded, don’t charge any interest (credit card APR), and require no credit check or credit-worthiness to obtain one. Prepaid debit card companies make their money by charging you a flat fee up-front when you load a card (reload fee) and a flat fee each month to keep the card open (monthly maintenance fee). These types of cards are readily available from many retail stores as well as online from various vendors.

Can You Use a Prepaid Debit Card Online?
Absolutely! You can use them to purchase the same kind of retail items you would purchase with a credit card – for instance, clothing, gifts, or groceries. You can even use debit cards to purchase online recurring subscriptions.

The thing to keep in mind with subscription purchases though is that the money must be loaded onto your card at the time the recurring charge hits. If you let your card’s balance slip down to an amount that’s below the subscription amount, the charge won’t complete and your subscription will be suspended or terminated.

Which Prepaid Cards Have Reload Packs?
Most prepaid cards use a “reload pack” to add cash to your card. Companies like Green Dot, AccountNow, and netSpend all have their own versions of money reload packs. In fact, Green Dot’s reload packs (named “MoneyPaks”) can be used to load up other company’s cards as well as their own. Here’s how they all work.

You purchase one of these packs at a retail outlet. Many stores carry a rather large selection of gift cards and reloadable debit cards so they always have each card’s reload pack available too. You pay cash for the pack when you check out (with the cashier) part of which is a charge for the load itself. For instance, you might pay the cashier $50.00 to load onto the card and another $3.00 to $5.00 (depending on the card) as a reload fee – a total of around $55.00.

From there, you take the pack and either phone into the prepaid card company or go onto their website to complete the cash load. You enter in the money pack’s information and your own card information (again either on the phone or online) and through the magic of electrons, your cash is loaded onto your card and ready to spend.

A good thing to keep in mind though is that these companies also have direct deposit capabilities. And when you set up a scheduled direct deposit they don’t charge a reload fee. So you can save a little money and time.

Can I Buy Reload Packs with a Credit Card?
The answer to this one is no. Cold hard cash has to change hands for you to reload your prepaid debit card. If the day ever came when you could use a credit card to purchase a reload pack, reloadable debit cards would stop being the strong budget tool they are today.

Are There Free Reloadable Prepaid Cards for Kids?
The answer to this could be yes or no. Most prepaid card companies will have a student card that’s available with a companion parent/guardian card. In other words a parent can buy a card that comes with a 2nd physical card that their child can use.

It’s free in the sense that you don’t have to pay extra fees for the use of two physical cards but the normal fees and restrictions apply on the account itself. It’s a great tool for parents in most cases because they can track all the spending on both cards and be in complete control of the account at all times.

Are There Any Prepaid Debit Cards That Let You Choose Your Own Design?
Alas, no. There are several credit card companies that let you choose from various designs but that feature set hasn’t found its way into the debit card arena just yet.

So will prepaid debit cards let you personalize your card in the future? Yes, they probably will. As the competition becomes more fierce, one company is bound to try to get an edge on its competition in this way. So there will probably be prepaid cards that’ll let you upload your picture to the card for instance in the near future, or pick from a variety of background designs. It just hasn’t happened yet.

Can You Use a Giftcard to Reload a Prepaid Debit Card?
This is sort of a balance transfer question and the answer is a definite no. Prepaid debit cards are reloaded with cash or direct deposits from a bank account and that’s it. There’s no facility for transferring money or balances from either personalized gift cards to debit cards or from debit cards to other debit cards.

What are the Best Prepaid Debit Cards?
This sounds like a subjective question that may be hard to answer but here’s a real objective way to measure these cards – and that’s by how much they charge you for purchasing the card, for reloading it, for maintaining it (monthly maintenance), and for the various other smaller customer-oriented services they offer (e.g. cell phone account alerts).

When you look at the question from a dollars and cents angle, the Walmart MoneyCard wins because it charges you the least of all the prepaid debit card competitors. A close second on the list is Green Dot Corporation (which also has some strong customer service going for it). The rest of the debit card vendors trail these two by a noticeable margin.

Do I Have to Pass a Credit Check to Get a Reloadable Debit Card?
No. This is one of the things that makes these cards unique in the financial sector. Originally, they were created to serve consumers with no bank accounts (aka “the Underbanked“) so they impose no credit check whatsoever. Which means that even if you have no credit, terrible credit, or just a bad credit score, you can still purchase one of these cards.

That’s because you load the card before you use it so there’s no “credit” extended to you by the card company. They don’t have to worry about you paying them back because you’ve paid up front. And the debit card application is very short and easy to fill out so applying for one is a snap.

What Happens if I Lose My Prepaid Card?
All of the top companies protect you and your card’s balance should you lose the card. Each company is a little different and their policies are usually buried in the cardholder agreement, but it all boils down to reporting the loss as soon as possible and receiving a replacement card in the mail. Note that there’s usually a charge for replacing the card.

Can I build up My Credit with a Reloadable Prepaid Card?
Usually the answer to this is no. But there are prepaid card vendors who have products that actually do help you build or rebuild your credit. They do this by advancing small amounts of money to their more established cardholders and reporting to the credit bureaus when payments are made or the amount is paid in full. AccountNow is one company that has a product like this.

Do Prepaid Debit Cards Charge Interest?
No. That’s one of the benefits of having a reloadable prepaid card over a credit card (even a zero percent credit card). The debit card will never charge you a dime of interest.

Can a Prepaid Debit Card be Used for Business?
Yes, reloadable cards work quite well for both large and small businesses. Companies can issue them to their employees to manage expenses such as business travel and entertainment. They can also be used for bonuses or other incentives. Also, more and more businesses are using prepaid debit cards as an alternative to their payroll checks. They pay their employees by making direct deposits onto an employee’s payroll debit card. These types of cards are very flexible business tools.

When is a Prepaid Debit Card a Good Idea?
When you have little or no credit and still want the convenience of buying items with plastic (either online or in-person at a retail store). It’s also a good idea for a student who’s just learning how to navigate the financial waters (student prepaid debit card). And it’s also a good idea for people who just want to get out-from-under their credit card debt and take back control of their financial life (see 4 Great Reasons to Use a Prepaid Debit Card).

These are just some of the questions that come up with prepaid debit cards. As I get more, I’ll try to answer them here.

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