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Last couple of years we have seen a real revolution in the way people choose to pay for things and services as more and more transactions are made by card instead of cash. In the following article we will show you the pros and cons of prepaid cards and then give some advice how to choose the best one for your needs.

Prepaid cards combine the convenience of credit or debit cards, but give you the possibility to set your spending limit according to your budget. Getting this type of card is available to everyone, regardless of credit history or income.

The main difference of credit card is that prepaid credit card has a credit limit based on a security deposit made beforehand. This way such card provides you with the convenience of a credit card without going into debt. You can use it to purchase items and you should load funds before using it, so you never spend more money than you have. These can be effective tools to teach kids about credit cards without allowing them to irresponsibly get charges that they can’t afford, or for those that have a hard time managing their finances and end up with huge amounts of credit card debt.

What are the main advantages of prepaid cards?

  • Widespread use
  • Prepaid cards are widely accepted and they have even more acceptability than credit cards in some cases. As they are associated with one of the major card networks, like Visa, MasterCard, Discover, American Express, they can be used anywhere those cards are used.

  • Best cards for bad credit
  • Despite poor credit history or low credit score, it is still possible to get the prepaid card.

  • Various features
  • Besides the basic ability to make purchases with a card, prepaid cards offer some other features. This kind of cards can be used to get instant cash from almost all the ATM’s and the transactions are secure as every such card is PIN-protected.

  • Reloading is simple
  • In case you need to put more cash on your card, you should just make a transfer of money from a bank account or financial institution.

  • Easier way to manage your money
  • When the money is run out, your spending stops automatically and you can’t get into debt. The activity and usage of your prepaid card can be tracked online or by using your phone. This makes it very easy to control all your spending, generate and keep records.

  • High level of protection
  • Prepaid cards offer the same theft and loss protections as a credit card. If you report the loss or theft of a registered card to the issuer, most will restore your balance and give you a new card. It is no need to worry about card fraud or identity theft, a card of this type could be a good option as they are not linked to your bank account and are PIN-protected.

So you have seen the advantages that prepaid card can give you, however they must be weighed against the disadvantages. The main among which are the various charges of such cards. According to the experts, the average charges nearly $300 in basic fees per year as activation fees for setting up a card, transaction fees for making purchases on the card, bill payment fees, declined transaction fees, inactivity fees, ATM charges for taking cash out and monthly administration fee. However, not all these cards are so expensive. Some of the fees can be relatively low, it depends on the card. For example, the only fee the American Express Prepaid Card charges is $2 for ATM withdrawals.

Another disadvantage is that they are not considered a form of credit, so it is impossible to build credit history by using them. You should understand that even though prepaid cards are bearing a credit card company logo on them, they are not credit cards. You are using your own deposited money instead of borrowing it and paying it back, so credit function is not available.

If after considering the upside and the downside of using a prepaid card you decide to get one, you should analyse several things in choosing the right card for your needs.

First, look at the fees and charges. Read carefully the information that comes with the card, so that you can know which fees are mandatory and which ones can be avoidable.

Second, find out the level of fraud protection offered. For example, payroll cards are subject to certain federal requirements and protection against fraud, but not all cards are subject to such protections. Other cards may offer protections through the card company, but you have to complete certain procedure in order to have those protections.

Finally, it is important for you to be vigilant in protecting yourself from fraud or identity theft. Also, be very careful and never accept offers to get a prepaid card for less than the face value as this could be a sign that the card has been stolen. Always check your card when you first get it to make sure that the protective stickers haven’t been removed or damaged. In addition, review your monthly statement regularly to make sure that you haven’t been a victim of any fraudulent activity.

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