Although prepaid and debit cards operate in comparable ways, there are variations between the two and consumers should clearly understand the similarities and distinction earlier than selecting one over the other.
Before we get to the variations, let’s look on the similarities. Each cards can be used anyplace the issuer is accepted – whether or not Visa, American Specific, Discover or MasterCard. Reload-able prepaids can be used at ATMs to withdraw money just like debit cards. Additionally, prepaid cards can be utilized to shop online and pay bills (as long as they are registered), just like debit cards. However, there are differences:
The primary major difference between a prepaid and a debit card is that debit cards are linked to a bank account and draw cash from that bank account to cover any charge made using the card. Prepaid cards have a pre-loaded amount and the person is able to use only the amount of cash loaded on the card. Some prepaids are reload-able, which means that the consumer can add more cash to the card after the initial quantity is depleted, while others are for one time use only, which means that once the value on the card is exhausted, the card is useless.
Another difference between the two is the issue of protection. Debit card; because they are linked to bank accounts do have some protection in opposition to fraudulent purchases. Most banks will refund cash to a checking or financial savings account if the card was used fraudulently. While some prepaids provide this protection, it varies by issuer and mostly applies to reloadable prepaid cards.
The opposite distinction between a debit and prepaid card is the possibility of overdraft. While almost all prepaid cards are limited to the amount of cash loaded on them, and therefore virtually eliminates the risk of overdraft, debit cards could be overdrawn, leading to charges that can add up quickly. In some cases, banks will charge a number of overdraft charges on overdrawn transactions occurring the identical day. You therefore must keep an eye in your account to avoid getting caught up in this situation.
Finally, there is nearly a a hundred% assured approval for prepaid cards. Even with reloadable prepaids that require personal data like social security number and address, consumers are hardly ever denied as long as they provide the knowledge requested. However, not all candidates are approved for bank accounts, and therefore 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 that are unable to qualify for bank accounts.
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