How Prepaid Debit Cards Work: An Overview


prepaid debit card works like a credit and checking account combined. Prepaid debit cards are also typically issued by bank holding companies and branded by major credit card companies.

Just like a gift card, money has to be loaded onto a prepaid debit card first before it can be used. The card is used pretty much like a credit card and is accepted in most places where credit cards are honoured.

While the usage aspect of prepaid debit cards are almost identical to that of a credit card, its financial aspect is similar to a checking account. That means any amount used is deducted from the account’s total balance and spending beyond the balance that’s available on the card is not allowed.

The Lowdown on Prepaid Debit Cards

Prepaid cards are deemed a wonderful solution and alternative for various transactions that often requires credit cards. Having prepaid debit cards is also especially helpful for those individuals who don’t trust how banking works, have poor credit scores, or don’t have access to banking services for one reason or another.

Prepaid cards are also considered a popular choice for gift-giving, thanks to the protection they offer in the event of theft or loss. This is also the reason they are slowly replacing cash as the preferred gift.

In addition, unlike cash which cannot be spent online, prepaid debit cards can be used for online transactions. Also, they have something that sets them apart from gift cards. Unlike prepaid debit cards, gift cards can’t be used at ATMs to retrieve cash.

Nowadays, prepaid debit cards are undoubtedly one of the fastest growing niches in the financial sector. In fact, there is a projected growth of 22 percent in the number of prepaid cards that will be used from 2015 to 2020.

Benefits of Prepaid Debit Cards

A prepaid debit card has many amazing benefits. Some of the most notable ones include:

They are safer to use compared to cash. If your prepaid debit card gets lost or stolen, you can recover the amount that’s on the card. The same can’t be said for cash that’s lost or stolen.

They are convenient to use. Unlike credit cards where you have to undergo strict financial and background checks, getting a prepaid card is pretty much straightforward. What’s even more amazing is a prepaid debit card can be used for purchases even when outside the country.

They can help effectively manage money and prevent overspending. Unlike a credit card where you “borrow” money from the bank for purchase and withdrawal transactions, a prepaid debit card will limit your spending and withdrawals to the amount that’s available on the card.

They can teach young people how to manage money properly. Many parents teach their children how to manage their money accordingly and curb overspending by giving them allowances through their prepaid debit cards.

Since young people often have the tendency to overspend and not appreciate the value of money yet, a prepaid debit card can teach them how to spend within their allocations and the balance that’s available on the card.