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Prepaid Cards: What They Really Are?


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Credit Card Applications » Research » Guides » Prepaid Cards » The Hitchhiker’s Guide to Prepaid Cards

The Hitchhiker’s Guide to Prepaid Cards

Updated: February 26, 2014

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The Hitchhiker's Guide to Prepaid Cards

Lots of people are confused about what prepaid cards really are. Are they even credit cards? The answer is no - prepaid cards aren't really credit cards at all, even though we offer them here at, and they look like credit cards. A piece of plastic, a magnetic strip, zip-zap through the credit card reader, and you've paid for your purchase, just like when you use a credit card. So what's the difference?

Credit cards give you a line of credit which you borrow against and pay back, while a prepaid card is loaded with money before you make the transaction. When you use a prepaid card, you're just using money you (or whoever bought the card) already spent. There's nothing to pay back and no credit involved.

So, you might be thinking, what's the difference between a prepaid card and the T.J. Maxx gift card that Auntie Sue from Oklahoma sent me for my birthday? Not much, really, except you can use a prepaid card anywhere that credit cards are accepted, not just at a discount clothing chain. A prepaid card might have a MasterCard, Visa, or American Express logo on it - you can use it anywhere that accepts those cards.

You can buy prepaid cards at a store - most grocery stores and drugstores sell them, plus a host of other retailers, depending on the card you want. Prepaid cards can also be purchased directly from the issuing bank, and most decent-sized reputable banks offer them.

Who Uses Prepaid Cards?

Prepaid cards are popular for a few reasons.

  • You can get one with no credit history at all. Since it's not a credit card, anyone can get one. This makes it popular among people with little or no credit history, or people with damaged credit, who might have trouble being approved for a regular credit card.
  • Parents can pre-load a card with money for their teenager or college student - it's a handy way to give them an allowance with a safety net. Since it's impossible to go into debt using a prepaid card, young people can have the convenience of a credit card, with zero chance of getting over their heads in debt.
  • Prepaid cards are also a good alternative for what's known as the "underbanked" population - people who for whatever reason are unable to get a checking account or a credit card and who therefore might have trouble doing all the everyday things that require swiping that little piece of plastic.
  • These cards are also often given as gift cards. They make great gifts for teachers, dog walkers, cousins you hardly know, or other hard-to-shop-for people in your life.

The Celebrity Invasion

Lately it seems like half the folks you see on the cover of US Weekly have their own branded prepaid cards - from Kim Kardashian and Russell Simmons to Lil Wayne and George Lopez. A company called MYPLASH (the name is a mashup of my plastic cash) takes aim at teenagers and issues prepaid cards through MasterCard bearing images of everyone from Edward and Bella in the Twilight Saga: Eclipse series, to cartoon monkeys and unicorns. Financial guru Suze Orman issued her own card, and even Elvis Presley has a posthumous prepaid card.

Why the star-studded lineup at the checkout counter? It's just a ploy to get people to pick up a prepaid card with a face on it that appeals to them. Prepaid cards are often packed with fees, and any card that features a celebrity is guaranteed to come with hefty fees. The best prepaid cards, like those from Western Union and American Express, are the plain vanilla ones - and I don't mean Vanilla Ice. (Ice, ice, baby.)

Caveat Emptor - Buyer Beware

  • Fees

    The problem with many prepaid cards is that they often come with high fees, as mentioned above. If you're in the market for one, you need to shop around and make sure you're getting one with the lowest fees, so that when you put $100 on the card, you can actually spend most of that $100 instead of having it go toward fees. We'll outline some of the more popular prepaid cards later in the article, and you can always check in with our experts to guide you if you have questions about a specific card.

    Oh, and one more note about fees: they'll be taken out of the money you load onto the card. You can't ever end up owing anything on a prepaid card - if you don't use it for a long enough time, the money might get drained away by fees, but there will never be ongoing fees that are charged once the card is at zero. So you can't get into debt with a prepaid card, no matter how high the fees might be. All the charges will be on the front end.

  • Credit Score

    The other big thing to be aware of is that a prepaid card isn't going to have any effect on your credit score. They will not help you build credit if you don't have any and they won't repair your credit if it's bad. Since they aren't credit cards and you never have to pay anything back, you can't establish a payment history that shows you're trustworthy. Everything you pay is on the front end. That's also why anyone can get one of these cards - anyone with some money to put on a card, that is.

    Some prepaid cards will say that they have credit score features, like 's Credit Score Tracker, but these features don't affect your actual score, no matter what they claim. They may report to a company known as PRBC (Payment Reporting Builds Credit) but this agency has no bearing on your credit report or your FICO score.

The Lineup: Six Prepaid Cards to Consider

Now that you know the basics about prepaid cards, we'll outline a few of them for you. They do all have some fees - no prepaid card is totally free of fees - but we feel that these are the best deals out there for anyone in the market for a prepaid card. The fee schedules can be complicated - with some of them offering premium cards or different levels of cards with different fees - so be sure to read the full fee schedule for the card you're considering.

Activation Fee: $0

Monthly Fee: $3.95

Domestic ATM Withdrawal Fee: $0

International ATM Withdrawal Fee: $1.99

Benefits: Get paid fast with free* direct deposit. No overdraft fees - spend only what you load. No credit check required (pending ID verification).

Activation Fee: $4.95

Monthly Fee: See Terms

Domestic ATM Withdrawal Fee: $2.50

International ATM Withdrawal Fee: $4.95

Benefits: 100% Approval (subject to I.D. Verification). $0 Monthly Fee*. No Minimum Balance.

Activation Fee: See Terms

Monthly Fee: See Terms

Domestic ATM Withdrawal Fee: $2.50

International ATM Withdrawal Fee: $4.95

Benefits: $0 Monthly Fee*. No Credit Check* or ChexSystems Check. Free* Direct Deposit.

Activation Fee: See Terms

Monthly Fee: $9.95

Domestic ATM Withdrawal Fee: $2.50

International ATM Withdrawal Fee: $4.95

Benefits: 100% Approval* - upon Successful ID Verification. $0 Activation Fee*. No Minimum Balance. No Risk of Overdraft Fees. $15 Bonus* with Qualifying Direct Deposit. Never Pay to Cash Your Paychecks and Get Your Pay Faster.

Activation Fee: See Terms

Monthly Fee: $9.95

Domestic ATM Withdrawal Fee: $2.50

International ATM Withdrawal Fee: $2.50

Benefits: Get paid faster than a Paper Check. Quick and Easy Sign Up. No Minimum Balance.

Activation Fee: See Terms

Monthly Fee: Up to $9.95

Domestic ATM Withdrawal Fee: $2.50

International ATM Withdrawal Fee: $4.95

Benefits: Instant Account Number - A Great Card for your Money. Free* Direct Deposit - Paycheck, Benefit Checks, Tax Refund Checks. Easy Online Bill Payment & Mobile Account Access.

Prepay Your Way

As you can see from the brief descriptions above, even though all prepaid cards share certain things in common and work essentially the same way, they each come with their own pros and cons. If a prepaid card is the right financial solution for you, shop around here at to find the one that suits your individual situation.

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