How Much Money Can A Prepaid Card Hold

The popularity of prepaid cards is skyrocketing. An estimated 23 million adults use them regularly — at the gas pump, the grocery checkout, the ATM, and even for direct deposit or to pay bills. Consumers purchase prepaid cards, then employ them like debit cards, making them a handy financial tool. But they're not without hazards. Let's look at the pros and cons of prepaid cards, how to choose them wisely and what mistakes to avoid, particularly when it comes to hidden and potentially costly fees.

Who Might Use a Prepaid Card?

Hank has had a run of financial bad luck lately, causing a serious ding to his credit score, and he tin can't qualify for a credit card. He doesn't want to deport wads of cash in his pockets, though, and then he uses his paycheck to purchase prepaid cards for his everyday purchases and even to pay his bills.

Pam sometimes has trouble keeping tabs on her account balance. Tired of paying hefty overdraft fees, her solution is to use prepaid cards to avoid spending more she has. She would rather take a purchase denied than pay another penalization fee.

Retired teachers Patricia and Sam live comfortably on their retirement incomes, as long as they keep a close middle on their finances and don't overspend. To help in that effort, the couple uses prepaid cards loaded with specific amounts for weekly groceries and entertainment. It'south a proficient thought to keep a rein on their upkeep.

Jack and Ella are about to send their eldest child off to higher. This will be the starting time time daughter Annie will be on her own — and treatment her own finances. Mom and Dad decide to equip Annie with a prepaid card loaded with a finite amount of cash. They see it as a way for Annie to practise using credit while keeping her spending in check, and it protects them from the risk of her unwittingly racking up a mountain of debt.

Marcie is a keen online shopper, regularly scouring people-to-people marketplaces on the cyberspace for collectibles, books and handcrafted items. Paying by greenbacks is out of the question, and she feels more secure and more comfortably anonymous using prepaid cards rather than her personal credit menu online.

Jack is fresh out of high schoolhouse, nevertheless deciding where life will take him adjacent. While he takes some time to mull his options, Jack works at a minimum-wage chore. His take-home bacon is too low to counter the depression-balance fees of a traditional bank checking account, so he has his paycheck straight deposited onto a prepaid card.

In the neighborhood where Lauren and Steve live, there are no banking company branches. Rather than exit of their way every time they demand cash, they keep prepaid cards handy for their everyday purchases.

Not long ago, your choices to pay for goods or services were greenbacks, checks or credit cards. Today, many consumers achieve for prepaid cards. In fact, prepaid cards are amidst the fastest-growing consumer financial products in the U.Due south., according to the Consumer Fiscal Protection Bureau (CFPB). Consumers put nearly $65 billion on "general-purpose reloadable" (GPR) prepaid cards in 2012; that was predicted to virtually double to $112 billion by 2018.

Prepaid Cards 101

Prepaid cards are piece of cake to get and can exist a user-friendly alternative to cash, checks or credit cards. Known officially as "general-purpose reloadable" and sometimes equally prepaid debit cards or prepaid credit cards, prepaid cards are loaded with cash. They tin can be used at ATMs for withdrawals and to buy simply about anything in person or online, like to debit cards tied to checking accounts.

People who practise non have a checking or savings accounts, or who apply them very little, used to be the main users of prepaid cards. But prepaid-carte usage is condign more mutual, growing more than 50 percent betwixt 2012 and 2014, driven primarily past increased adoption amid those consumers who do take bank accounts.

Types of Prepaid Cards

1

General-Purpose Reloadable Cards

For the purposes of this guide, we're primarily talking about this type of carte: You load coin onto it, and and so use it like you would a debit carte. GPRs typically sport network brands, such as Visa, MasterCard, Detect or American Limited, and can be used anywhere credit cards are accustomed.

2

Gift Cards

These cards come up in specific monetary denominations, good for purchases at specific stores (think Amazon gift bill of fare). They usually are not reloadable, and they're perfect for gifting.

3

Payroll Cards

Just as the name says, instead of a paycheck, some employees receive prepaid cards loaded with their bacon amounts. They can then use the cards like they would debit cards to purchase goods and services and to pay bills.

While the above are the top iii most commonly used prepaid cards, others include regime benefit cards that pay unemployment benefits, child support and other benefits; public transit system cards; and some higher ID cards.

Prepaid Cards Vs Credit and Debit Cards

At this point, you may be wondering how prepaid cards differ from debit and credit cards. They may look alike, but they all function differently.

• 

  With a credit card, you borrow money you must pay back, with interest if yous do not pay the balance by the due date. To go i you have to have good credit, and using one responsibly volition go on to improve your credit rating. This in plough can help y'all down the line to get better rates on car loans, mortgages, etc. On the other hand, using a credit card irresponsibly can lead to overspending, debt accumulation, tardily payments and, ultimately, damaged credit.

• 

  A debit menu is issued by your bank and linked to your checking or savings account. The money is yours and in that location are no interest charges, merely there can be penalization fees for overdrafts. As with your checkbook, you'll desire to keep track of your residuum.

• 

  With prepaid cards, you spend coin that has previously been loaded onto them; they aren't connected to checking or savings accounts. They work like debit cards, merely you do not need a depository financial institution business relationship (or proficient credit) to get one. You can buy the card in a certain corporeality, only you tin add boosted coin to information technology at any time. When the balance is gone, your carte du jour stops working unless you add more money to information technology.

Hidden Fees to Watch Out For

All prepaid cards are different and may accuse varying fees, from a charge for each time you lot use the menu to make a purchase to a fee for using it to withdraw cash from an ATM. These fees can add upwardly quickly, eating away at the residuum of coin you've loaded onto the card. It's important to read the fine impress to observe the all-time deal. Look for information on the menu, inside the carte du jour bundle or at the bill of fare issuer'southward website

Some activities your card provider might charge for and a range of their associated fees include:

• Card purchase and/or activation: $0-$30
• Card reload: $0-$v
• Monthly service: $0-$ix.95
• Purchase transaction: $0.49-$2
• ATM withdrawal: $1-$3
• Inactivity: $2-$5.95/calendar month
• Balance inquiry: $0.49-$2
• Paper statement: $0-$five.95+
• Lost card replacement: $x+
• Bill of fare cancellation: $10+
• Overdraft: $fifteen+

Other possible fee-incurring activities include:

• Bill payment
• Additional menu
• Inactivity
• Terminate payment
• Refuse
• Menu-to-card transfer
• Strange transaction

Sources: CFPB and knowyourcard.org

FAQs

You can purchase prepaid cards from retailers' stores or websites, other online sources, check-cashing businesses and banks or credit unions.

Funds can be added to the cards through direct eolith, at stores or by depositing checks using ATMs or mobile devices.

Desire to know how much is left on your card? Depending on your card, you lot tin can usually check your residue via a phone call, text alert, email alert, a website, a phone app or an ATM. Y'all may be charged a fee for certain methods.

Currently, some prepaid cards are covered by some consumer protection laws and regulations, only others are not. That will alter in October 2017, when new CFPB rules go into event.

The new rules volition help customers avoid costly fees and give them the aforementioned protections that come with traditional debit and credit cards. Consumers volition be able to compare cards more easily, and their money will be safe if their cards are lost or stolen.

Under the new rules, fees must exist disclosed on the outside of card packaging. Consumers who report lost or stolen cards within ii days will be simply liable for up to $l of their losses. Issuers must provide gratuitous and like shooting fish in a barrel access to prepaid cardholders' account information, and those issuers who do give prepaid-card consumers the pick of spending more coin than they take deposited in the account must give protections similar to those on credit cards.

The Pros & Cons of Using a Prepaid Card

The advantages and disadvantages of prepaid-menu utilize varies widely by carte. Following are some issues to consider when purchasing a prepaid carte; not all cards have all the pros nor all the cons listed below.

Pros

• You can purchase them almost anywhere.

• You can use them pretty much everywhere.

• If y'all lose cash, information technology's limited. If your credit card is stolen, the thief could rack up substantial charges. If you lose your debit carte or checkbook, a thief could drain your account. But if you lose a prepaid card, your loss is limited to the amount on the carte du jour. Also, some prepaid cards offer protections against loss or theft.

• This is a plus for those with less-than-stellar credit histories.

• You can load your monthly grocery budget, for example, on a prepaid menu. Use it only for groceries, and when it's spent, live off what's in your pantry until the side by side month.

• Loathe sifting through paperwork or electronic statements? In that location's a monthly neb with prepaid cards.

• No problem. With a prepaid card in your pocket, you'd to go.

• When using a prepaid card, yous're spending a specific amount of money you've loaded onto it, so at that place is no chance of incurring debt with it.

• This protection is built in because when your carte du jour reaches a $0 residuum, information technology stops working.

Cons

• This is the biggest, most significant downside to prepaid cards and may outweigh all of the pros. Beware! Encounter "Hidden Fees to Watch Out For" above.

• Money stored on prepaid cards does non accrue interest.

• Prepaid cards currently accept fewer buy and fraud protections than credit or debit cards. That changes in October 2017 (see "How Prepaid Debit Cards Work"), but for now, cheque the terms of your menu.

• Prepaid-bill of fare action is not reported to the three major credit-reporting agencies, so it doesn't affect your credit score. Equally such, information technology volition not help build your credit.

Expert Advice on Using a Prepaid Credit Bill of fare

Jeffrey Berdahl, CPA/PFS, CSEP, is a partner at RLB Accountants in Allentown, PA. His areas of expertise include tax planning and preparation, fiscal planning and business acquisitions likewise as accounting and management advisory services. He is a fellow member of the American Found of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants.

Why are prepaid cards then popular?

Jeffrey Berdahl :

There are many reasons. A lot of people similar to use them equally a stopgap for spending. Peradventure they want to limit how much they are spending, so they put a sure corporeality on a prepaid card, say $100. When the hundred dollars goes to groceries, they're on a prepare upkeep, every bit opposed to writing a check, where it's like shooting fish in a barrel to spend more than they intended, so they possibly face overdraft fees.

Prepaid cards are also popular with those who accept soiled credit and have difficulty getting banking in the conventional sense, as well equally parents sending kids off to college for the beginning time who feel more at ease equipping them with prepaid cards with finite amounts of cash.

And some individuals but feel safer with prepaid cards in their wallets rather than cash or debit or credit cards. They feel that the loss or theft of the prepaid carte is meliorate than getting their checking account wiped out or having the credit menu abused past a thief.

Also, people my begetter (fourscore) always carried cash. I deport debit and credit cards, and many millennials seem to favor these prepaid cards. They don't have to bargain with banks, there's no hassle, they're easy to reload and there'southward some generational aspect to it as well.

What are the drawbacks of using prepaid cards?

Jeffrey Berdahl :

The fees are all over the place. A prepaid-card user might face an initiation fee for turning the card on, a fee for each transaction, a monthly maintenance fee then on. Consumers really need to stay on top of this and know what they are getting into.

Another effect is the lack of customer service. If you have a problem, it's non like you lot can walk into your banking concern branch and someone in that location will take intendance of it for y'all. With a prepaid card, you might be calling a 1-800 number and be lucky to go a alive person. I think that's a big disadvantage, especially when you're dealing with access and security. It'southward really comfy to be able to talk to an actual person in your banking concern to get a problem resolved.

Are there alternatives for people considering prepaid cards?

Jeffrey Berdahl :

Well, in that location are coin orders, cashier's checks and certified checks. Of form, as long as a problematic credit history isn't a trouble, information technology possible to get the quondam-fashioned route— setting up checking and savings accounts with a bank. Another option offered by some banks is a checkless checking business relationship, also known as due east-checking. You practice your banking online or on a mobile phone and use a debit card to get cash and make purchases.

How can consumers avert mistakes when using prepaid cards?

Jeffrey Berdahl :

My beginning recommendation is to purchase prepaid cards from a bank or a known, reputable institution and not from "ABC Company." Exist savvy and know what you're doing. Look for and read all the accompanying information to avoid getting ambushed by hidden fees. Right at present there are no mandatory, compatible disclosure rules, then it is up to the consumer to stay educated.

About the Author

*Rates, fees or bonuses may vary or include specific stipulations. The content on this folio is authentic as of the posting/last updated date; however, some of the offers mentioned may have expired. We recommend visiting the carte du jour issuer's website for the most up-to-date information bachelor.
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