Money Read Time: 3 min

Weighing the Benefits of Prepaid Debit Cards

Many Americans use some sort of prepaid debit card, for a wide variety of reasons. Some prefer them for their versatility and the ability to use them for everything from paying bills to spending money at retailers. They are also popular among the 5.9 million American households that, for whatever reason, do not hold a bank account.1

A prepaid debit card is established when an individual provides cash to a financial institution in exchange for a card that can be used like any debit card or credit card, except it is limited to purchases in an amount not to exceed the card’s cash balance. When the balance runs low or is exhausted, the card can be reloaded with additional cash.

There are reasons why you might consider using a prepaid debit card, including:

  • For individuals with poor credit, who may be unable to get a credit card, carrying a prepaid debit card means they don't have to carry cash.
  • For individuals who have trouble managing their spending, prepaid debit cards can act as a restraint on poor habits.
  • As an alternative to credit cards for college students, they can help protect parents from their children's excessive spending while teaching important budgeting lessons.
  • They offer potential protection against the loss of cash when traveling.
  • In a world of data theft, prepaid debit cards do not house personal data, such as your Social Security number or bank account information, shielding that data in the event of theft.

They do come with drawbacks, such as:

  • They do not provide any advance of credit, like a credit card. So if you have an emergency expense that exceeds your prepaid debit card balance, the debit card will be of limited use.
  • Prepaid debit cards may come with considerable fees, including account opening fees, transaction fees, and monthly charges. Depending upon the balance, fees can represent a high percentage of your cash value.
  • You will not earn reward points or rebates like you might with a credit card.

If you are considering a prepaid debit card, be sure to comparison shop. The fees can vary widely, so look for an appropriate card. And keep yourself informed about your running balance so you don’t find yourself short on money.

1. FDIC.gov, July 24, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

 

Related Content

Countering Counterfeit Currency

Countering Counterfeit Currency

Combating counterfeiting remains core to preserving the integrity of the nation’s money.

What’s My 2024 Tax Bracket?

What’s My 2024 Tax Bracket?

Check out this handy reference of updated ranges from the IRS in case your designated bracket has changed.

Keeping Up with the Joneses

Keeping Up with the Joneses

Lifestyle inflation can be the enemy of wealth building. What could happen if you invested instead of buying more stuff?

 

Have A Question About This Topic?







Thank you! Oops!

Is Term Life Insurance for You?

Term insurance is the simplest form of life insurance. Here's how it works.

What Can You Buy With 529 Distributions?

This article can be a helpful guide when begin preparing for education expenses.

Buying a Vacation Home? 5 Questions to Consider First

You may be considering purchasing a vacation property, this can be an exciting milestone, but there are a few things to consider first.

View all articles

A Look at Systematic Withdrawals

This calculator may help you estimate how long funds may last given regular withdrawals.

Should I Buy or Lease an Auto?

This calculator compares the financial impact of leasing versus buying an automobile.

Disability Income

This calculator estimates your chances of becoming disabled and your potential need for disability insurance.

View all calculators

16 Wall Street Cliches in 60 Seconds

Pundits say a lot of things about the markets. Let's see if you can keep up.

Safeguard Your Digital Estate

If you died, what would happen to your email archives, social profiles and online accounts?

When Do You Need a Will?

When do you need a will? The answer is easy: Right Now.

View all videos