How to Use Prepaid Debit Cards

According to a 2020 Fdic report, 6.5% of U.S households are unbanked. There is a myriad of reasons for Americans choosing to remain bankless—the number one being the convenience of prepaid debit cards. You don’t need a checking account to get a prepaid card.
There are several prepaid debit card companies (read about the most influential of them here).

What is a Prepaid Debit Card, and How Does it Work?

Many people confuse prepaid cards for credit cards because the two look and work similarly, except there’s no credit behind prepaid cards. You are using your money, not the bank’s. Still, some think prepaid cards and good ol’ debit cards are one and the same thing—wrong! 

A debit card draws money from your checking account; prepaid cards are preloaded. You typically cannot spend more than your balance unless your card has an overdraft facility. Prepaid cards are hassle-free, easy-to-use alternatives to banks. They allow you to conveniently sidestep anxiety-inducing credit checks and all that’s involved to get a credit card. 

How do I Use a Prepaid Debit Card?

First, you need to get a prepaid debit card. Luckily, there are many ways to do this, including:

• Commercial prepaid cards (e.g., MasterCard, Visa, Discover, American Express)

• Over the counter (e.g., WalmartMoney Card)

• Federal government-issued cards (e.g., Direct express)

• State-issued Electronic Transfer Benefits (EBT) cards (e.g., Food Stamps)

• Banks

Most cards come preloaded—you buy the card for the amount of money on it. Once depleted, you will have several options for replenishing the balance. You can:

• Set up direct deposit through employer payroll cards (and avoid reload fees)

• Reload it at retail stores such as Walgreens or Walmart

• Deposit a check at an ATM

• Transfer money from your checking account

• Transfer money from your PayPal account 

• Make online check deposits from a smartphone

Withdrawing Cash or Shopping with Prepaid Card

Armed with a loaded card, only ATMs and participating stores’ accessibility can limit what you can do with your money. Visa or MasterCard-branded cards tend to be less restrictive, as they are accepted at most stores and outlets. Some card issuers restrict where and the amount of money you can withdraw. Still, others charge additional fees for off-network withdrawals.

Shopping is, by far, the most popular use of prepaid cards. To pay for something, swipe or insert the card at checkout. If you are shopping online, all you need to do is type the card number. 

Prepaid cards trump cash gifts. You can set your children and other dependents up with a prepaid debit card. They are popular among minors and students, who can then use the preloaded funds to access, say, cafeterias and other student services.

Prepaid Debit Cards Fees

Beware that you could be charged a fee per reload, ATM withdrawal, or purchase. Unless you need cash for other use, you can avoid withdrawal fees by paying for purchases with your card. Plan your card activities to avoid unnecessary fees. More importantly, it pays to be well versed with your card’s fee structure. 

Read more about other applicable fees here.