At first glance, you may assume that a prepaid credit card is the same as a debit card or traditional credit card. However, as you dig deeper and learn more, you’ll come to find that there are a variety of differences that affect how you can use the card.
Let’s start with a basic overview of prepaid credit cards. This type of card is not linked to a bank account. Instead, the money you deposit into your account is your balance. That balance then acts as your spending limit.
Prepaid card vs. debit card
As noted above, a prepaid credit card is not linked to a bank account. And for that reason, it’s different than a debit card.
With a debit card, you have access to all the money in your checking account (and maybe even your savings account).
There’s no concern about overspending with a prepaid card. You can only spend what you have loaded onto the card.
This is in contrast to a debit card, with which you can overspend. This leads to money coming out of another account to cover it — known as overdraft protection — or an overdraft fee.
Prepaid card vs. credit card
Many people confuse prepaid credit cards and traditional credit cards because they both generally have a MasterCard Visa, Discover, or American Express logo. Despite this similarity, these are not one and the same.
When you use a prepaid credit card, you’re accessing your own funds. But with a credit card, you’re actually borrowing money. You’re not spending money that you already have.
Is a prepaid credit card a good idea?
There’s no right or wrong answer to this question, as it depends on a variety of personal and financial factors. Here are some of the benefits of a prepaid credit card:
- No risk of overspending
- Simple to use and reload at almost any retailer online or in person
- Safer than carrying cash
- An alternative to a debit card if you don’t have a bank account
With these benefits in mind, it’s easier to determine if a prepaid credit card is right for you. For instance, if you want to give a college age child access to money, without any fear of overspending, a prepaid card is an option to consider.
Some people go their entire life never using a prepaid card, while others come to find that this is exactly what they need.
If you’re considering a prepaid card, learn more online, compare your options, and decide which one is best for you.