Reloadable Debit Cards

Posted on December 5, 2009
Filed Under Prepaid Debit Cards

Reloadable debit cards are extremely convenient to use. They’re just like credit cards, only better. In fact, I think reloadable prepaid debit cards should be your first choice when it comes to personal financial spending tools. But let’s face it, these types of cards are not well known or perhaps easily understood. What makes them such a great tool? Why are they so convenient? And why should I load my hard-earned cash onto one of these cards in the first place? These are all good questions, so let’s have a chat.

First off, it’s important to understand that the reloadable prepaid card industry was basically born to serve a segment of the population known as the “Underbanked.” These are mostly hard-working folks who don’t have a strong relationship with a bank or savings and loan. That’s because in some cases they just don’t want to do business with a bank – they don’t trust them or they just don’t see the need. In other cases it’s because the banks don’t want to do business with them. And that may be due to poor or non-existent credit histories or other financial “black marks.”

Prepaid debit cards (sometimes known as “stored value cards”) were created to serve this population. They don’t require credit checks and they’re easy to acquire. Plus they give people the ability to use their cash in transactions where cash just isn’t used. They basically act as plastic bank accounts for their owners.

These plastic bank accounts are convenient to use too because they can be used just like a normal credit card. In fact they look just like credit cards – there’s no real physical difference between a Visa debit card or a MasterCard debit card and their credit cards big brothers. That means you can use a debit card online to make an Internet gift purchase. Or you can use prepaid debit cards with online bill pay. And of course you can just walk into a store and use your reloadable debit card to buy any item you see because most stores accept debit cards. They’re basically easier to use than cash in most cases.

Also, just about every reloadable debit card today comes with ATM privileges. So you can use a card to pull cash out of many different locations if you want to. Just the thing for those times when you find it’s handier to use cash than plastic.

Now let’s talk about security. By using a reloadable prepaid debit card you avoid having to carry around a lot of cash. That, in and of itself, can leave you feeling more secure. But there are other advantages too. If you happen to lose a prepaid debit card or have it stolen, you can report it and have it replaced. If you report the loss quickly enough, you’ll minimize or completely avoid losing any value on the card through fraudulent use.

There’s another kind of security you get with reloadable Visa debit cards or MasterCards. I call that “credit security.” That’s because using a prepaid debit card online for instance protects you from over spending. Think about it for a moment. These are prepaid cards so they’re loaded up ahead of time. You spend down your balance as you go until there’s either no balance left or you reload them with more cash. You can’t spend more than you’ve loaded (unlike a credit card) so you can never dig yourself into a credit hole caused by a high credit card APR. All the top reloadable debit cards work like this.

This actually works in your favor because reload debit cards make it easier for you to stay within your budget. You commit yourself to spending only the money you’ve already earned or saved. Contrast that with what’s been happening in the credit card world where people have been able to spend money they haven’t even seen yet (i.e. their credit). And then they end up paying interest on top of it because most people end up making minimum payments on their cards instead of paying off the credit card balance each month.

That means when you buy groceries with your debit card you’re only paying for the groceries once. When most people buy groceries with their credit cards they end up paying for the groceries themselves plus another 15% to 29% interest on those groceries as well for the next months. You don’t need an accountant to tell you that if you keep on spending more than you have to for your routine purchases, you’ll end up with less money for anything else.

This budget benefit can carry over to your kids too. That’s because there are reloadable debit cards for kids as well (AKA student debit cards). They’re just like every other reloadable prepaid debit card except that, because they’re for kids, they’re usually linked to a parent’s account. They carry with them all the same benefits and options as other cards so your child can learn about spending and saving through normal use of the card. The added benefit to you, the parent, is that you can keep track of all the spending done with the card. Also, you can reload the debit card for your child if you want or need to which is a great feature when your boy or girl goes off on a school trip or away to college.

Now these are all great reasons why a MasterCard debit card or a Visa debit card is a great financial tool. But of course, there’s no such thing as free reloadable debit cards – they all come with certain costs.

These costs come in the form of fees. The worst reloadable debit cards will have a lot of nickel and dime fees that are hard to keep track of. The best reloadable debit cards will have a small set of easily understandable fees. Let’s look at three of the usual fees just about every debit card has.

There will be a fee to purchase the reloadable card in the first place. That’s right, you actually buy the card. And for the cost of the card you get a true Visa or MasterCard card, personalized with your name on it, and an expiration date of anywhere from one to three years.

You’ll also pay a fee every time you reload a debit card. This is pretty standard in the industry. It’s usually a fairly small fee that stays the same no matter how much money you’re loading onto the card.

Then there’s the monthly maintenance fee. This is also pretty standard in the industry. And again, it’s usually fairly small.

On the surface, this may look like a lot of money going out of your wallet but it usually compares very well with what happens with credit cards. Remember, credit cards charge interest, sometimes lots of interest and prepaid cards charge none. Then there are all the extra fees that credit card companies zing you with when you’re not looking – fees like over limit fees, late payment fees, and yearly maintenance fees. Again, these are fees you won’t see with reloadable cards.

You’ll only pay the purchase fee one time for a reloadable debit card. You’ll only pay the reload fee when you choose to reload. And the monthly maintenance fee, well, you’re stuck with that monthly. But after all is said and done, you’ll find that the best reloadable debit card will cost you far, far less than the average credit card with even a meager balance.

Oh and I forgot to mention that you can choose to stop using your debit card any time you want to. Simply spend down your balance and throw it away if you so desire. You won’t incur another fee. Try doing that with a credit card and you’ll just see the interest and fees keep on coming.

So how do you buy a reloadable debit card in the first place? There are actually two main ways. One, you can go online to any prepaid card company’s website and order a card for delivery in one or two weeks. Or you can go to a local retail outlet that sells prepaid debit cards and pick up a card immediately. Most drug store chains carry cards that are reloadable so they’re pretty easy to find.

When you order online, the shiny new debit card you receive in the mail is personalized just for you. It will have your name embossed right on the front and it will have the Visa or MasterCard logo. At that point, you load it up with money and off you go (more on reloading prepaid cards below).

If you purchase a debit card at your local retailer, you not only buy the debit card but you load it up with money as well. The card you receive in the package is a temporary card. It won’t have your name on it but it will still have the MasterCard of Visa logo. You can use it until you’ve spent all of the money on it or you can order a permanent card to replace it.

After you’ve spent down the balance on your stored value card, you can reload it in a number of ways. Most prepaid card companies have “reload packs” you can buy and use to add money to a prepaid card. Some companies also allow you to actually load cash on the debit card with an electronic “swipe” through a card reader at a local retailer. The best prepaid card companies will also allow automatic deposits to your prepaid card from a payroll or annuity check directly to your card – this technique is called a “direct deposit reload.”

The reload packs are a little inconvenient in that you must take cash to a store, purchase the pack, and then go home and load the money onto your prepaid card via a phone call or an Internet visit. The swipe reloads are more convenient but you still must take cash down to the store. The easiest of all by far is the direct deposit method. You have a little bit of paperwork to do up front, but every reload to your card after that is automatic.

Keeping track of your spending with a reloadable debit card is extremely easy. Virtually all companies have a website that you can reach from any connected PC where you can dial up your account and view all of your spending and fees quickly. Most companies will also have a phone system you can use to do almost the same thing. Some of the larger companies will also send you automatic account alerts on your card activity to your email and even directly to your cell phone.

Prepaid debit cards are a great vehicle to help you control your spending. They behave sort of like an electronic wallet because they allow you to use your cash through various electronic means. Since the cards are prepaid, there’s no real danger that you can push yourself any further into debt than you already are. And if you find yourself deeply in debt, you can use these types of cards to work your way out of it and back into the land of the debt-free. It’s time we all started spending the money we have and not the credit that costs us so much extra. Reloadable debit cards are the way to go.

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