As frustrating as it is, there are times in life when we all struggle to get approved for a credit card. Naturally, this seems to happen when we need the credit card the most.
Perhaps it's because there were errors on your credit report that took awhile to get settled. Perhaps a swiftly ballooning credit card balance caused your score to dip. Or maybe you had some past issues with making payments on time and that hurt your score. Whatever the case, if we find out about these issues too late (or act on them too late), we can get stuck in times of need.
That's where the prepaid debit card comes along.
A prepaid debit card is like a cross between a gift card and a credit card. They're like gift cards because you purchase the card and your limit is the balance you put into it. They're like credit cards because you can use them for purchases the same way you would a credit card. These are great options if you're unable to be approved for traditional credit cards. (They're also great options if you're unable or unwilling to open a bank account.)
How do they work? You can use them to make retail purchases and withdrawals at ATMs. However, they're not linked to a traditional bank account or a line of credit. (In fact, there’s no such thing as a prepaid credit card). There are several ways to add money to a prepaid card. You can load money via direct deposit or bank transfer, you can purchase reload cards, or you can deposit a check via mobile deposit. Most prepaid cards use the same card payment networks (American Express, Discover, MasterCard and Visa) as traditional debit and credit cards.
So how do you get one? Lots of ways! There are hundreds of prepaid cards available nationwide. To help out, we've sorted through them all to highlight the best for you here.
1. The Cheapest Prepaid Debit Card that Acts as a Checking Account
American Express Bluebird Acts as a Free Checking Account
American Express Bluebird is the prepaid card with the best fee policy. With American Express Bluebird, most transactions are free of charge. There are only three times you would get charged a fee. One is if you buy your card at a retail location. Another is if you withdraw cash at a non-MoneyPass ATM. And the final way you can get charged is using money transfers.
Otherwise, Bluebird has no monthly fee and no activation fee. You get free ATM access to 24,000 MoneyPass ATMs in the U.S. You get free cash reloads at Walmart. And there's no foreign transaction fee and you get free mobile check deposit.
One of the most interesting features of this card is the unique ability to write checks. Since prepaid cards aren't linked to a bank account, it's rare to be able to write checks from them. But with this card, American Express deducts the funds on a check from your account right away. This benefit makes Bluebird a strong alternative to a traditional checking account.
Monthly Fees are Low on the Best Prepaid Debit Cards
Most prepaid cards have a monthly or annual fee. Prepaid cards also sometimes come with upfront fees such as activation and purchase fees. But that doesn't mean you always have to pay these fees. In fact, some of the top prepaid debit cards don't charge monthly fees at all.
As you look for a prepaid card, keep in mind that these are not the same thing as cash-value gift cards. The difference is that prepaid debit cards are reloadable and cash-value gift cards can only be used once.
The Cost of Using ATMs and Swipes with Prepaid Debit Cards
Accessing your prepaid funds can be the most expensive aspect of owning a prepaid card. Unless the prepaid card is connected to partnering ATM network for free access, expect to pay a fee at an ATM. (Not just for withdrawals, you can even be charged for checking your balance at an ATM.) Furthermore, the owners of these ATMs often impose their own surcharge, usually around $2-$3.
Luckily, there are ways to withdraw cash from your card without paying a penalty. The best way to do this is to use the cash back feature any time you're making a purchase.
Here's how that works. Let's say you have a balance of $100 and you're making a $20 purchase. You could theoretically ask for $80 cash back at the time of your purchase. You would then have your cash without paying a fee to get it. Keep in mind that not all stores allow this, though, so check first if getting cash is an urgent matter.
One of the greatest things about a prepaid debit card is the fact that they can't get you into debt. With a credit card, you're given a line of credit to borrow from. Then you're charged interest if you don't pay your balance off before the end of the billing cycle. On a bank account, you can get into deep fees if you overdraw your account. You could even be charged additional fees for having a negative balance.
But with a prepaid debit card, neither of these situations can occur. You aren't given a line of credit to borrow from. The amount you can spend is the amount you deposited minus all purchases and withdrawals. And, if you don't have enough funds to complete a purchase, your card will be denied. No overdraws, no fees.
Checkwriting Rarely Found with Prepaid Cards
Unlike the American Express Bluebird, most prepaid debit cards don't allow you to write checks. The reason for this is because paper checks can too easily lead to overdrawn accounts. Rather, most prepaid debit cards will give you the option to pay your bills for free online. Then, if you want to write a check to someone, you'd just put that person down as the payee of a bill that you're paying online.
2. The Prepaid Debit Card with Big Bank Experience
Chase Liquid is Like a Big-Bank Checking Account
If you're looking for a banking experience without opening a bank account, Chase Liquid is the prepaid card for you. Why? Because it's offered directly from one of the nation's largest banks.
This can be especially useful if you want more access to ATMs. You can use your Chase Liquid card at any Chase ATM for cash and check deposits and for cash withdrawals. Even better, you can manage your account on Chase's mobile app. (The app offers free mobile check deposit and Chase Quickpay).
Prepaid Cards Best if You Don't Have a Bank Account or Credit Card
The best reason to use a prepaid debit card is if you don't have a bank account or credit card. However, prepaid debit cards are not a good option if your main aim is to improve your credit score. If you don't qualify for a traditional credit card but want to improve your score, secured credit cards are your best option.
One of the best ways to improve your credit score is to make on-time payments on a credit card every month. That's because your payment history is a large factor on your credit score. However, since a prepaid debit card is not a credit card, your payment history isn't recorded this way. Thus, the prepaid debit card doesn't do anything to improve your score.
Not everyone realizes that their banking behavior is recorded just like their credit behavior. But rather than bureaus like Equifax, Experian, and TransUnion, Chexsystems records banking behavior. Since prepaid debit cards aren't tied to a bank account, your activity isn't recorded that way either. So the beauty of the prepaid debit card is that it isn't a credit card or a bank account. But this benefit becomes an issue if your main goal is to build or improve credit.
At the end of the day, if you need a way to make purchases via a card and you don't want/can't get a bank account, a prepaid card can greatly help you. But if you want to focus on increasing your credit score, then you'll want a secured card to help you build credit.
Reloadable Prepaid Cards Require Social Security Number
There are multiple types of prepaid cards - and the reloadable ones require you to give a social security number. This rule was created under the USA PATRIOT Act, which aimed to thwart money laundering and other fraudulent activity. (Activity prepaid cards made easier to do before the social security number requirement.)
3. The Prepaid Debit Card That Can Be Tailored to Your Habits
American Express Serve® Lets You Pick the Main Prepaid Card Features
For ultimate flexibility and personalization, check out the American Express Serve® prepaid debit card. This card comes in three different versions, which means you can pick one that best matches your life.
What kind of financial habits make a difference with this card? If you know you'll be using direct deposit of at least $500 per month, then the default version is the card for you. It comes with a $1 monthly fee that can be waived with this direct deposit. If you think you'll be reloading your card at retail locations, then the second option is the one for you. It comes with a $4.95 monthly fee. But you get free reloads at over 45,000 locations, including CVS, Dollar General, Family Dollar, Rite Aid, Walmart, and 7-Eleven. If cashback rewards are the most important thing to you, then you'll want the third version of the card. It comes with a $5.95 monthly fee but offers 1% cash back on all purchases.
No matter which one you choose, all versions of American Express Serve® offer a few additional features. That includes free mobile check deposit, MoneyPass ATM access ($2.50 at non-MoneyPass ATMS), online bill pay, and subaccounts.
How to Reload Your Prepaid Debit Card
When it comes to prepaid cards, the best thing you can do is avoid fees. These fees come in small amounts, but they can add up quickly. That's why you'll want to understand how you'll usually reload your card. Then view the options given by your desired card to see if it matches. How a card allows reloads will vary - as will the fees for reloading. Typically, you can reload any prepaid card for free via direct deposit, with a bank deposit, or with another debit card.
Cash deposits to your prepaid card will be the major hurdle. That's because these prepaid cards rarely maintain or partner with extensive ATM networks. Instead, many prepaid card companies work with retailers that sell their prepaid cards to provide cash reloads. To reload at the register can cost up to $5 each time.
Other ways to deposit that are usually free may include mailed-in check deposits and mobile check deposits. These options will vary per card.
Prepaid Cards Allow Multiple Users
Much like checking accounts and credit cards, prepaid cards may allow multiple users for the same card account. This can be useful when managing spending among family members.
For instance, some cards allow parents to provide subaccounts to teens to teach them how to responsibly use debit cards. Some also use prepaid cards to work their way up to traditional bank accounts.
Prepaid Cards Are a Great Financial Building Block
When all is said and done, a prepaid card is a great option as a building block for your finances. Start with prepaid debit cards, work your way up to secured credit cards, and then up to traditional credit cards. That's how you'll be able to open the door to as many options as you'd like for the future of your finances.
|Credit Cards||Notable Features||Who It's Best For|
|American Express Bluebird||Free prepaid account that offers check-writing.||People who want a low-cost alternative to a traditional checking account.|
|Chase Liquid||Provides many features of a Chase checking account (without the checks).||People who can't get a bank account but want the conveniences of a major bank.|
|American Express Serve®||Prepaid debit card with low fees and convenient features.||People who don't want or cannot get a credit card but still want to be able to pay with a card while minimizing fees.|