Prepaid Debit Cards – How They Work and Why People Use Them

Prepaid Debit Cards – How They Work and Why People Use Them

April 18, 2013         Written By Natalie Rutledge

The prepaid debit card industry has grown tremendously in the last few years and consumers are expected to load $672 billion on these cards in 2013. What is the hype behind prepaid cards? Why do consumers love them so much?

In this article, we will address common uses for prepaid debit cards so you can determine if you want one in the future. The benefits may be larger than you think.

How Prepaid Cards Work

Prepaid debit cards are easy to understand. You get a card that you can load money onto, and then you deposit however much money you want into your account. The card will most likely be backed by Visa, MasterCard, Discover or one of the other major credit card issuers. Once the money is in the account, you can use your prepaid card just like you would a credit card. As long as the facility accepts the type of card you have, you should not have any problems paying with prepaid card.

You never have a bill for a prepaid card unless your card has carrying fees. For instance, you may owe an annual fee, a monthly usage fee or an ATM withdrawal fee. If you make a deposit when one of these fees is due, the amount owed will be taken out of the amount deposited. A $300 deposit would turn into a $275 available balance if you had an annual fee of $25 to pay. Most of these costs are low, but they do vary by provider. You have to compare prepaid cards to determine which one will be most affordable.

Why Do People Use Prepaid Cards?

For non-prepaid owners, the idea of first loading money onto a card only to spend it again momentarily seems a bit unnecessary. Why take the extra step? The main reasons for this include:

  • Money management: It is easy to put yourself on a budget with a prepaid card. Just load the exact amount of money you are willing to spend, and then you will not have any money left to use frivolously. Plus, you can usually monitor your account online, so you can keep track of your expenses on a regular basis.
  • Security: If you make a lot of online purchases, you may be worried about putting your bank account or credit card information on the web. If you load your prepaid card with your money, you won’t be at risk.
  • Card for the Unbanked: There are a great number of Americans that are now unbanked. Prepaid cards allow them to make purchases without having to carry cash, or to do online shopping.
  • Habit forming: Some users choose to have a prepaid card before applying for a credit card. This teaches them how to spend money responsibly and how to pay that money back as needed. A prepaid card is a good way to teach financial responsibility to a young adult without the risks associated with a debit or credit card.
  • Gift distribution: If you don’t want to get a gift card for someone, you can get a prepaid card that he or she can use anywhere. This makes the gift more versatile, and it still allows the recipient to have a choice of what he or she wants.
  • Paychecks: Many businesses have now opened the option of paying their employees through prepaid cards because they can directly deposit money onto them. This allows the employees to get their money faster, and it helps the company save paper from checks.

There are many other reasons why people use prepaid cards, but above all, it comes down to convenience. Cards are much more convenient than cash or checks, and that’s what keeps people coming back to them.

How to Find the Right Prepaid Debit Card

There are many prepaid debit cards to choose from on the market. The one you select needs to fit your lifestyle. Some features to keep in mind include:

  • Annual fees
  • Transaction fees
  • Monthly fees
  • ATM fees (also known as cash advance fees)
  • Loading limits
  • Direct deposit options
  • Application fees
  • Processing fees
  • Overdraft fees

You should not have to worry about the state of your credit because a number of prepaid cards are designed for people with poor or limited credit history. As long as you load money onto the card, you will be able to use it.

Here are two of our most popular prepaid cards to consider:

Applying for any one of those cards is simple and fast. You should receive instant approval after you apply, and then you will receive notification of when your card will arrive. Once you have it in hand, you can activate it and start loading money to your account.

The information contained within this article was accurate as of April 18, 2013. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Natalie Rutledge

Natalie Rutledge majored in Communications at Mississippi State University. She was in sales for a number of businesses and spent nine years working as a communications advisor to various entities. Natalie can be contacted directly at
View all posts by Natalie Rutledge
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