Though prepaid and debit cards operate in comparable ways, there are variations between the 2 and consumers ought to clearly understand the similarities and distinction before choosing one over the other.
Earlier than we get to the variations, let’s look on the similarities. Each cards can be used wherever the issuer is accepted – whether or not Visa, American Specific, Discover or MasterCard. Reload-able prepaids can be used at ATMs to withdraw cash just like debit cards. Additionally, prepaid cards can be used to shop online and pay bills (so long as they are registered), similar to debit cards. Nonetheless, there are differences:
The first main difference between a prepaid and a debit card is that debit cards are linked to a bank account and draw money from that bank account to cover any charge made utilizing the card. Prepaid cards have a pre-loaded amount and the user is able to use only the amount of cash loaded on the card. Some prepaids are reload-able, which means that the person can add more cash to the card after the initial amount is depleted, while others are for one time use only, meaning that when the value on the card is exhausted, the card is useless.
One other difference between the two is the problem of protection. Debit card; because they are linked to bank accounts do have some protection towards fraudulent purchases. Most banks will refund money to a checking or financial savings account if the card was used fraudulently. While some prepaids provide this protection, it varies by issuer and principally applies to reloadable prepaid cards.
The opposite difference between a debit and prepaid card is the possibility of overdraft. While virtually all prepaid cards are limited to the amount of cash loaded on them, and therefore virtually eliminates the risk of overdraft, debit cards might be overdrawn, leading to charges that may add up quickly. In some cases, banks will charge multiple overdraft fees on overdrawn transactions occurring the identical day. You subsequently need to keep an eye in your account to avoid getting caught up in this situation.
Finally, there is virtually a 100% assured approval for prepaid cards. Even with reloadable prepaids that require personal information like social security number and address, patrons are hardly ever denied as long as they provide the knowledge requested. Nevertheless, not all applicants are approved for bank accounts, and hence not all applicants that apply for debit cards are able to get them. That makes the reloadable prepaid cards more attractive to the unbanked or those who are unable to qualify for bank accounts.
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