Managing your monthly budget is most directly affected by the way you access your bank account. Banks offer students and their parents multiple ways to track their spending throughout college, including the lesser-known way of using a prepaid debit card.
A prepaid debit card is an alternative to using a regular debit card to get cash from your bank account. It is essentially a re-loadable gift card funded with a certain amount of money, which establishes a card limit. It is not directly attached to the account.
- Teaching money management
- Functions of a prepaid debit card
- Prepaid debit account fees and perks
- Does a prepaid debit card help your credit?
Cards can be used wherever traditional debit cards are accepted until the balance is exhausted. Then, the card just takes up space in your wallet until it is reloaded.
While these cards can be a good ﬁrst step towards teaching students ﬁnancial responsibilities, they can also prove to be quite costly.
Because ﬁnancial giants like Visa, MasterCard and American Express issue the cards, they often toss in many fees. There can be activation fees as high as $39.95 and monthly fees up to $10 a month. Combine these with your typical $2 ATM withdrawal fees and the price of learning ﬁnancial responsibility might be more than it’s worth.
It’s not all bad, though. The perks can be much better than those offered by a regular debit card. Some prepaid cards offer a free credit score, unlimited purchase transactions, online bill payment/check writing and direct deposit. Also, prepaid cards don’t impose overdraft fees and offer card-to-card transfers and online budgeting.
As prepaid cards become more popular, merchants continue to make them more appealing with rewards programs and point incentives. These cards are very simple to obtain as they do not require a credit check, and since they are FDIC insured they provide a great alternative to a checking account for young people.
A common misconception about prepaid debit cards is that they will help you qualify for a credit card. However, using a prepaid debit card means you are spending your own money that you have put on the card, which has nothing to do with credit.
These are not “prepaid credit cards.” Even though when you use the card you select credit as your means of payment, this is simply ensuring the card gets charged through your merchant’s payment network (e.g. MasterCard). Buying on credit, rather, means purchasing on your merchants’ dime, which shows you can be trusted.
While a prepaid debit card seems safer and gives parents more control over their child’s spending, it has more fees and does not give the student as much ﬁnancial independence as a regular debit card. On their website, Visa even refers to their prepaid debit card as “the perfect checking account alternative.”
Having said that, if a checking account is not an option start with a prepaid debit card to help better understand your money.
- Prepaid debit cards should be used to teach responsible spending.
- The cards are essentially gift cards with strings attached.
- You must research the many different perks and fees.
- Getting this card will not help your credit score.