Prepaid cards offer a financial solution for individuals who don’t have a bank account or who are looking for new ways to budget. This alternative banking card is reloadable and allows you to spend the money that’s on the card at stores or any place where you would use a credit or debit card. Prepaid cards can also be used to withdraw money from an ATM. Every prepaid card is backed by a transaction account held by a bank. In some cases, you may link the prepaid card to a checking account to transfer money, but in most cases the card is used independently from a bank account.
Who Uses Prepaid Cards?
You can open a prepaid card without a credit check or bank account. For this reason, prepaid cards are the financial tool of choice for the unbanked, underbanked, and those working to rebuild their credit. Individuals with access to traditional banking services also turn to prepaid cards to help budget and save. Since you can’t physically spend more than is loaded on the card, they are a great tool for effectively managing your finances. There is no threat of overdraft fees because it’s impossible to surpass the spending limit imposed by the card balance.
Many families used prepaid cards for their teens to manage monthly allowance. Unlike with a credit card, a teen can’t rack up a huge bill on a prepaid card. Since they pose no threat to your credit, prepaid cards also don’t build your credit. Individuals looking to build credit should research their secured credit card options.
While prepaid cards are a necessity for the unbanked, they offer convenience to all of their users, even those with traditional bank accounts, debit cards, and credit cards. Prepaid cards are an important alternative financial service that fill a gap in the banking industry. Most importantly, prepaid cards offer financial inclusion for the unbanked and underbanked.
How Do Prepaid Cards Work?
With prepaid cards, you pay before you ever swipe the card. You load money onto the card using cash or other funds. When you use the card to pay for goods and services, the money is simply deducted from the card balance. With a debit card, you pay at the time of the transaction and money is debited straight from your checking account. With a credit card, you pay after the transaction when your bill is due. A prepaid card is your only option for paying before the transaction.
You can purchase and load a prepaid card from a retailer, check casher, or bank. While every prepaid card offers a slightly different experience, these features are the most common:
- Reloadable: prepaid cards are reloadable. You put money on the card, spend money, and then reload with more money.
- ATM Access: many prepaid cards offer ATM access, allowing you to withdraw cash from the card balance.
- Account Limits: many prepaid cards have set account limits that determine how much you can reload and withdraw from the card in a certain time frame.
- Fees: many prepaid cards have activation fees, monthly fees, and fees for making deposits or using out-of-network ATMs.
- Expiration: prepaid cards have an expiration date like any other card in your wallet. While you will need to get a new card, your funds never expire and can be transferred to the new card.
- Extras: some prepaid cards offer extras like online bill pay, multiple copies of a card (for families), and even rewards programs.
If you are in the market for a prepaid card, you should carefully evaluate your options and choose a card with features that match your needs and budget. It’s important to also note the potential downside of prepaid cards. RushCard and Walmart Money Card are two prepaid card companies that have recently experienced network outages. During these outages, prepaid card holders lost access to their funds for days.
Beyond potential outages, many prepaid cards are missing essential banking functions. For individuals without a bank account, it may still be necessary to piece together additional alternative financial services to pay bills and manage your complete financial picture.
Prepaid Card Regulation
The Consumer Financial Protection Bureau issued their final ruling on prepaid accounts in October 2016. The rules, which go into effect in April 2018, will give prepaid card users federal protections similar to debit and credit card accounts. The new rules require simply and upfront disclosures of all associated fees and features of the prepaid card. They also give prepaid card users the ability to dispute transactions and offer protection against fraudulent charges.
Under the new rules, prepaid card issuers must ask the user up front if they want to opt-in to services allowing them to borrow money. If they opt-in, any potential overdraft fees must be reasonable and explained to the user in clear terms. In essence, the new rules aim to increase transparency and safety for prepaid cards. Critics of the rules point out that the requirements lump all kinds of prepaid debit cards (those with vastly different services, fees, purposes, etc.) into one group. Others assert that the rules are altogether unnecessary, solving a problem that simply doesn’t exist. Attempts to block the ruling from going into effect were blocked in 2017.
Check Cashing Services
Prepaid debit cards are an integral part of any suite of check cashing services. Other popular services include convenient bill pay, money transfer, and of course, check cashing! How does the prepaid debit card fit into the picture? Most often, a check cashing customer will cash their paycheck at a check cashing outlet and then reload their prepaid card. This card can then be used to run every day errands, pay for groceries, fill up the tank with gas, and more. When used in conjunction with check cashing, the prepaid card allows the customer to completely circumvent a traditional bank.
Since banking access is expensive and reserved for those with higher incomes and better credit, these services fill a serious gap in financial services. In this way, prepaid cards promote financial inclusion and improve the lives of those who need them.
National Check and Currency supports check cashers with real business bank accounts, expert compliance guidance, and state of the art technology. NCC also provides nationwide cash logistics so that check cashers can effectively rotate their working capital. This allows check cashers to focus on serving their customers with services, like prepaid cards.