Though prepaid and debit cards perform in similar ways, there are differences between the two and consumers ought to clearly understand the similarities and distinction before selecting one over the other.
Before we get to the differences, let’s look on the comparableities. Each cards can be utilized anyplace the issuer is accepted – whether Visa, American Express, Discover or MasterCard. Reload-able prepaids can be used at ATMs to withdraw cash just like debit cards. Additionally, prepaid cards can be utilized to shop online and pay bills (so long as they are registered), just like debit cards. Nevertheless, 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 money from that bank account to cover any cost made using the card. Prepaid cards have a pre-loaded quantity and the user is able to make use of only the sum of money loaded on the card. Some prepaids are reload-able, which means that the person can add more money to the card after the initial quantity is depleted, while others are for one time use only, meaning that once the worth on the card is exhausted, the card is useless.
Another distinction between the two is the problem of protection. Debit card; because they’re linked to bank accounts do have some protection against fraudulent purchases. Most banks will refund cash to a checking or 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 other difference between a debit and prepaid card is the possibility of overdraft. While virtually all prepaid cards are limited to the sum of money loaded on them, and therefore nearly eliminates the risk of overdraft, debit cards might be overdrawn, leading to fees that can add up quickly. In some cases, banks will charge a number of overdraft charges on overdrawn transactions occurring the same day. You subsequently must keep an eye on your account to keep away from getting caught up in this situation.
Finally, there’s nearly a a hundred% guaranteed approval for prepaid cards. Even with reloadable prepaids that require personal data like social security number and address, consumers are not often denied so long as they provide the information requested. Nevertheless, 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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