While traditional credit cards are a great consumer product because they reward your spending, the best prepaid cards are useful because they can help you control your budget…
If you need to control expenses or just better manage your budget, then prepaid cards may be a good solution for you.
What is a Prepaid Debit Card?
A prepaid card or prepaid debit card is a card issued by a bank or financial institution that you can prepay for payment.
Think of them as a gift card that you can spend almost anywhere, not just in one store.
Compared to debit cards
Prepaid debit cards are slightly different from regular debit cards.
Regular debit cards connect to a checking account and withdraw funds from that bank account every time you make a purchase. With traditional debit cards, you also run the risk of overspending in your account.
Prepaid debit cards contain funds pre-loaded onto the card, and you generally cannot spend more than has been loaded onto the card. There is also no bank account required to open a prepaid debit card.
This provides some consumer protection and is costly, usually in the form of a monthly fee.
Compared to credit cards
Traditional credit cards (like the Blaze MasterCard) are fundamentally different from prepaid debit cards for several reasons, including the fact that regular credit cards offer rewards, benefits, and have an account that you pay every month.
There is also a prepayment credit cards other than prepaid debit cards.
Prepaid credit cards or secured credit cards work similarly to a regular credit card in that you need to apply, verify your credit, and get approval for the card. Except when using a prepaid credit card, you need to pay a deposit or prepayment. This is a form of collateral for the lender in case you cannot get your card back.
Prepaid credit cards are a great tool for building credit, while prepaid debit cards are a good budgeting tool.
7 best prepaid cards to keep your budget in check
American Express serves FREE top-ups
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- Reload fee: $ 0 at 45,000 locations
- Withdrawal from ATMs: $ 0 at MoneyPass ATMs ($ 2.50 at other ATMs)
- Awards: No one
American Express Serve FREE Reloads is one of the few American Express cards to make the top seven prepaid cards.
This card is great for replacing your checking account, thanks to the wide variety of free top-up methods available at many retail stores. In addition, you can withdraw money from the card free of charge at MoneyPass ATMs and do not charge a purchase fee when submitting an application via the Internet.
However, the $ 6.95 fee is a hefty amount to pay, with no rewards or bonuses in return.
American Express Serve Cash Back
- Withdrawal from ATMs: $ 0 at MoneyPass ATMs ($ 2.50 at other ATMs)
- Awards: Unlimited 1% cashback
The commission for the second American Express card is slightly higher, but a 1% cashback is offered in return. In fact, it was the only card that clearly indicated their online reward program.
While the 1% cashback is fantastic, keep in mind that you will need to spend $ 10,000 per year with this card to offset the $ 7.95 annual fee. So make sure the math is working in your favor before you get down to business.
Bluebird by American Express
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- Reload fee: $ 0 in select stores
- Withdrawal from ATMs: $ 0 at MoneyPass ATMs ($ 2.50 at other ATMs)
- Awards: No one
American Express’s Bluebird made the list because it is one of the most affordable prepaid debit cards around.
This card does not charge monthly or yearly fees and still offers free top-up options and free ATM withdrawals. If you are only looking for a cheap card to manage your expenses, the Bluebird card may be right for you.
Prepaid Virtual Prepaid Visa Movo Card
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- Reload fee: $ 0 via Paypal and select methods
- Withdrawal from ATMs: $ 0 at 6,000 ATMs on the Visa Plus Alliance ATM network ($ 2 at other ATMs)
- Awards: No one
Movo is another inexpensive card on the list, making it a great option for helping you keep your budget in check. Plus, they don’t offer ATM fees at 6,000 ATMs nationwide.
However, to be honest, I am struggling to find a reason to use this card instead of the American Express alternative located above it.
Prepaid Mastercard Brink
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- Reload fee: $ 0 with direct deposit
- Withdrawal from ATMs: US $ 2.50
- Awards: Potential
The Mastercard Brink prepaid card is one of the most expensive cards on the list and offers a unique high yielding savings account with a 5% yield. The details on the site are a bit vague, but it seems worth exploring.
It also looks like there is potential for rewards. Here is the exact language from their website:
Use your card in everyday places and you can receive money back offers to your card account.
Being obscure on the website you’re trying to sell a product on is my pet peeve (and I’m sure others are), but this card does show a lot of potential despite its high monthly fees.
Prepaid Visa NetSpend Card
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- Reload fee: $ 0 with mobile check top-up
The NetSpend Prepaid Card offers two different payment plans – monthly or pay-as-you-go. The monthly plan is something that costs a hefty $ 9.95.
Like the Brink card, NetSpend claims to offer personalized rewards, but doesn’t provide many details until you apply and receive the card.
FamZoo Prepaid Debit Card
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- Reload fee: $ 0 with direct deposit
- Withdrawal from ATMs: 0 USD at MoneyPass ATMs
FamZoo is the perfect card for families looking to teach their kids about money and budgeting so they can grow up to be financially responsible.
Through FamZoo, you can get four cards (more at an additional cost) and set aside a budget for each card. They even offer budgeting tools and incentives to help you teach your kids good habits.
The monthly fees are high, but if it can help teach your kids some financial lessons, it’s well worth it.
Prepaid cards: pros and cons
Prepaid Cards Pros
Budgeting: Prepaid debit cards give you better control over your spending and budget. Unlike traditional debit and credit cards, it is much more difficult to spend excess funds when you deposit funds on the card before making purchases.
Works like a bank: In many cases, a prepaid debit card can replace the need to have a bank account and potentially simplify your finances.
No credit check: When using prepaid debit cards, a strict credit check is not required.
Prepaid Cards Cons
Expenses: Most prepaid debit cards have multiple fees and these costs can increase. In my opinion, these types of cards should be temporary solutions to help you set a budget or manage expenses. In the long run, there are better types of cards that actually reward your expenses rather than charge you money to use them.
Does not increase credit: Unlike prepaid or secured credit cards, prepaid debit cards do not create credit. This also means that they do not require a tough credit check and cannot negatively affect your credit.
Opportunity cost: Every dollar you spend with your prepaid card is one dollar less than you can spend with a cashback credit card or other premium credit card. As mentioned earlier, your goal should be to move from prepaid debit cards, perhaps a secured credit card, then a credit card for fair credit, and ultimately credit card promotion.
How to choose the best prepaid card for you
You can choose a prepaid debit card in three easy steps:
Step 1. Determine why you need a prepaid debit loan
First, determine why you need a prepaid card. In general, this should be one of three reasons:
- You need to manage your money and build the best budget
- You want to teach your kids the basics of money and budgeting
- Do you want to replace your bank account
If it is for another reason, there may be a better solution for you and I would suggest that you check out other card options besides prepaid debit cards.
Step 2. Write down your prepaid card needs
Second, you must write down exactly what you want from your prepaid card, which can include things like:
- Cashback or rewards
- Free cash withdrawal from ATMs
- Free account replenishment
- No monthly fee
- And more
It will help if you take it one step further and arrange the functions you want in order.
Just as there are different investment brokers for different needs and different bank accounts for different needs, there are prepaid cards for different needs. Understanding exactly what you want from your card will help you choose the right card for yourself.
Step 3. Find the cheapest card that suits your needs
Finally, you must find the cheapest card that suits your needs from step 2!
Most prepaid cards charge some monthly fee and other fees on top of that, and you need to be diligent to keep those fees to a minimum.
Hopefully in a few months you will have control over your budget and be ready to upgrade to a higher quality card!
This article originally appeared on Your Money Geek and has been republished with permission.