How, and When, To Use A Prepaid Bank Card

Written by , October 11, 2011

How, and When, To Use A Prepaid Bank CardPrepaid bank cards look similar to traditional credit and debit cards. Since they carry the Visa or MasterCard logo prepaid cards are accepted as payment nearly everywhere traditional cards are accepted. In truth, however, prepaid bank cards are a special type of payment method.

With a prepaid bank card, the cardholder deposits a certain amount of money with the card company, and can then make purchases using the card. Each purchase reduces the balance of their card account, so when their account balance is too low, the card will no longer work. In order to open an account, the cardholder must agree to pay periodic (and sometimes transaction-based) fees for this service.

Here is some information and advice on how and when a prepaid bank card might be appropriate.

  • Checking Account Substitute. We all need a way to manage our money. We spend money throughout the month, even though we only receive paychecks several times during that same period. Carrying around all of our money in cash is foolish (and dangerous). We also need a way to safely and securely store our money as we save. Checking and savings accounts are the way most people to address these needs, but for various reasons not everyone can open a checking or savings account. For these individuals, a prepaid bank card can function as a checking account substitute. Depositing funds onto the card enables the holder to better manage their cash flow between paychecks, and to do so more safely than simply using cash.
  • On Vacation. When going on vacation, some people are reluctant to take or use their normal credit cards. There is a fear that you might lose your card, or have your account information compromised at an unfamiliar restaurant or merchant. In years past, people would use traveler’s checks, but many stores and restaurants no longer accept them. By using a prepaid bank card, you can load it with a fixed amount of cash and not face the risk of having your personal credit damaged if the card is lost or stolen. In addition, using a prepaid bank card in this way can also help you to stick to your vacation budget since once you spend all of the money you deposited, you can’t spend any more with the card.
  • Convenience. Recent changes to federal credit card laws have made it much harder for college students to obtain their first credit cards. In years past, it was very easy for students to open several different accounts even without any significant income. This made many aspects of student life more convenient, although it also provided the opportunity for less disciplined students to dig themselves a significant financial hole by spending beyond their means. Prepaid bank cards can offer students the convenience of a credit card without the need to obtain a cosigner for a traditional credit card, and without the risk of ruining their credit ratings. Once the balance on your prepaid bank card goes to zero, you’re done spending until you can deposit more money.
  • If you’re considering using a prepaid bank card, make sure to pay close attention to the fees you’ll be charged. Some card providers charge fees that are rather large compared to the balance you might keep on the card.

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