A:

Prepaid debit cards work almost like a combination of a credit card and a checking account. They are issued by a bank holding company and branded by major credit card companies, such as Visa, MasterCard, Discover or American Express.

Money is loaded on to the prepaid card much like a gift card. The card can then be used like a credit card and is accepted most places where credit cards are accepted. While the usage part is like a credit card, the financial side is like a checking account. Money spent is deducted from the total balance. There is no ability to spend beyond this balance.

Prepaid Debit Cards

Prepaid debit cards can be a convenient solution when a credit card is required for various transactions – especially for people who don’t have access to banking services, lack knowledge or trust in how banking works, or are locked out of the banking system due to poor credit scores. They are also a popular option for gift-giving because of protection in the case of loss or theft. In fact, they are replacing cash as a preferred gift for these reasons. Cash cannot be spent online, but money in prepaid debit cards can. And, in contrast to gift cards, prepaid debit cards can be used at an ATM to retrieve cash.

Prepaid debit cards are one of the fastest growing niches in the financial sector. The number of cards sold is expected to grow 22% annually from 2015 to 2020, according to projections by the Consumer Financial Protection Bureau. The total dollar value loaded onto these prepaid cards is expected to nearly double to $116 billion by 2020.

 A large number of Americans do not participate in the banking system for various reasons. A prepaid debit card is a tentative step toward enabling them to join it. 

RELATED FAQS
  1. What transactions cannot be made using prepaid credit cards?

    Find out about the transactions that are restricted when you use a prepaid credit card, and find out about other ways to ... Read Answer >>
  2. Can I use a prepaid credit card to pay bills or transfer money to other accounts?

    Learn how prepaid credit cards enable convenient bill payments and transfers. Explore different fees charged for such transactions. Read Answer >>
  3. What are the pros and cons of gift cards?

    Examine the pros and cons of physical and digital gift cards. Learn about protection in case of loss, monitoring spending ... Read Answer >>
Related Articles
  1. Personal Finance

    How to Find the Right Prepaid Debit Card

    Prepaid debit cards have become very popular. Here are some tips for choosing the right one for your needs.
  2. Personal Finance

    3 New Types Of Credit Cards To Look For

    These three types of credit cards are becoming popular with customers looking to pay less fees and build up their credit scores.
  3. Personal Finance

    Keeping Your Debit Card Transactions Safe

    Debit card use has become more popular than ever, but not every consumer knows what they need to do to make sure they keep their debit card safe.
  4. Personal Finance

    The Dangers of Getting a Paycheck on a Prepaid Debit Card

    Receiving your paycheck on a prepaid debit card may seem like a boon until you discover all the fees that can come with it.
  5. Personal Finance

    How To Live Without A Credit Card

    Debit cards are more widely accepted and provide better fraud protection than in the past.
  6. Personal Finance

    10 Reasons To Use Your Credit Card

    There's a surprising credit card strategy you should employ as a consumer ... use your card for everything (or almost).
  7. Personal Finance

    Purchases You Should Always Make With A Credit Card

    Credit cards aren't always bad possessions to have. There are certain perks associated with using credit cards as we make routine or irregular purchases.
  8. Personal Finance

    Credit Card or Cash: Which To Use?

    Credit cards are more convenient to use than cash, but they're not always the best choice. Here is why you should and shouldn't pay with a credit card.
  9. Personal Finance

    Why More Millennials Need Credit Cards

    Here's why more Millennials should have credit cards – even though a majority don’t.
RELATED TERMS
  1. Prepaid Cards Processor

    A company that processes transactions for prepaid payment cards. ...
  2. Prepaid Credit Card

    A prepaid credit card is a secured card issued by a financial ...
  3. Cash Card

    A cash card is any electronic payment card that stores cash for ...
  4. Bank Card

    A bank card, also known as a physical card, is used to gain access ...
  5. Open Loop Card

    An open loop card is an electronic payment card that can be used ...
  6. Payroll Card

    A payroll card is a prepaid card onto which an employer loads ...
Trading Center