Prepaid debit cards can be used to buy almost anything, whether you’re shopping online or in person. They may also be a helpful budgeting tool, and they don’t affect your credit. You may even be able to recover your money if you lose the card.
However, prepaid debit cards do have some disadvantages, including possible fees. Learn how these cards work to help determine if a prepaid debit card makes sense for you.
What Is a Prepaid Debit Card?
A prepaid debit card shares some features of a credit card, debit card, and gift card. It’s a debit card that’s been pre-loaded with money that you can generally use at any retailer (online or in person) that accepts credit cards.
Like credit cards, prepaid debit cards may be associated with credit card networks. So a prepaid Visa debit card, for instance, can be used anywhere that accepts Visa.
Each purchase you make on a prepaid debit card will deduct from the amount that’s been pre-loaded onto the card. When you reach the end of your pre-loaded cash, you can’t buy anything else with the card.
It may be possible to add more money to the card when the balance gets low via cash or direct deposit, depending on the card. However, there might be a fee to reload the card with money.
Pros of Prepaid Debit Cards
Like most financial products, there are pros and cons to consider when it comes to using prepaid debit cards. Here are a few of the benefits.
No interest or bills
A prepaid debit card is not a credit card, and you can’t carry a balance on it. That means you pay no interest when you use the card, and there is no bill to pay at the end of the month. A prepaid debit card is basically the plastic equivalent of cash.
Limited loss
It used to be that losing a prepaid debit card was like losing cash — you were out of luck. But legislation by the Consumer Financial Protection Bureau (CFPB) that took effect in 2019 required card issuers to provide protection against fraud and errors. In order to access this protection, you must usually follow instructions to register your card with the prepaid card issuer and report any theft or loss promptly.
Security for Personal Information
Prepaid debit cards don’t typically contain any of your personal or financial information. So if your card falls into the wrong hands, it’s generally not possible for someone to access your sensitive information.
Automatic budgeting
Prepaid debit cards offer a hard stop on spending, meaning that if there’s $100 on the card, you can’t spend more than $100.
For people who have a hard time with impulse purchases or those who are trying to stick to a strict budget, prepaid debit cards may provide a helpful tool to prevent overspending.
There are some prepaid cards that allow account holders to overdraft and spend more than the balance on the card. They may charge a fee for this. If going over the limit is a problem for you, it may be worth considering a card that doesn’t allow overdrafting.
Available to those with less-than-stellar credit
There is no credit check required to get a prepaid debit card. This makes prepaid debit cards one option to consider for consumers who are unable to qualify for a traditional credit card.
If your credit is sub-par, you can get a prepaid debit card and use it where major credit cards are accepted.
Teaching tool
Those with children may find that prepaid debit cards could be a useful tool to teach about money.
Prepaid debit cards could be used by parents to introduce concepts of spending within limits, to help children understand using plastic instead of cash, or to dole out allowances so kids can practice their money management skills.
Spending tracker
Some cards offer email or text alerts based on card activity, or they’ll notify you when the card has been reloaded or the account balance is getting low.
Possible to deposit paychecks
You can have funds (like paychecks) directly deposited onto some prepaid debit cards, skipping the need to manually reload the card as the balance runs low. This could mean that funds are available faster than they would be if you were cashing a paper check.
Cons of Prepaid Debit Cards
Here are a few downsides to consider when it comes to prepaid debit cards.
No credit effect
Although there’s no credit check required to get these cards, it means prepaid debit cards aren’t connected to a line of credit like credit cards are.
Because the company that administers the prepaid debit card is not reporting your payment activity to the credit bureaus, these cards aren’t helpful for establishing or strengthening your credit history.
High fees
Depending on the card, a prepaid credit card may come with a host of attached fees. Some prepaid cards may charge fees for certain activities including:
• Activating the card
• Making a purchase
• Adding money to the card
• Checking the balance on the card
• Withdrawing money at an ATM
• Replacing a lost card
• Foreign transaction fees
• Inactivity after a period of time with no transactions
If you’re considering using a prepaid debit card, you may want to shop around and review the costs and fees associated with different types of prepaid debit cards.
Another option for your money — and one that could help it grow — is to open an online bank account that offers a high yield for your savings. With a bank account, you’ll typically also have access to ATMs and online and mobile banking for added convenience. And some bank accounts come with no fees, unlike certain debit cards.
Potential for loss
If you don’t register your prepaid card and something happens to it — loss, theft or fraud — there may be no way to recover your cash.
Getting a Prepaid Debit Card
You can purchase prepaid debit cards at a variety of locations, including grocery stores and drug stores, online, or from some banks and credit unions.
Purchasing a prepaid debit card usually requires you to load money onto the card at the time you buy it. For example, if you want to buy a $50 prepaid Visa debit card at the drugstore, you would pay the fee to activate the card, plus the $50 you want to load onto it.
If you’re shopping for cards, pay attention to the card fees, which should be displayed on the card’s packaging. There may also be a toll-free number or website you can visit for complete fee information. To the extent possible, it’s worth trying to find prepaid debit cards with fewer fees.
After purchasing the card, to be protected against fraud, loss or theft of your card, you’ll usually need to register it.
The prepaid card will generally come with instructions for doing this. The card provider may request information such as your full name, contact information, date of birth ,and Social Security number or tax ID.
Managing Your Money
Sticking to a budget and managing your money can be daunting. Balancing your income against your expenses and savings goals takes dedication and commitment.
Fortunately, the right tools can make it easier. If you’re looking for an alternative to a prepaid debit card, one option to consider is SoFi Checking and Savings. It allows you to streamline money management since you can save and spend in one place. Plus, the account comes with a high APY and no account fees.
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SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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