What is a prepaid card?

Prepaid cards allow you to deposit money on your own or through direct deposit. They can be handy for maintaining a budget, but they do have some drawbacks as well.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

A prepaid card can be a valuable financial tool for several reasons. In addition to being an alternative payment method, prepaid cards can be useful for budgeting and saving money. They also come in handy in situations where cash isn't practical to use, such as when shopping online or paying bills electronically.

How Prepaid Cards Work

A prepaid card is a form of debit card that works similarly to a check card. You deposit money on your card, either through direct deposit or in person, and then you can use your card at most merchants that accept that particular type of card (Visa, MasterCard, Discover, or American Express).

Prepaid cards have several potential benefits, but they also have a few drawbacks you should be aware of before deciding whether or not a one is right for you. 

Practical Uses and Benefits

There are plenty of reasons a prepaid card could be a good idea, but keep in mind that not all prepaid cards have all of these benefits. 

  • They're accepted in situations where cash is not (such as online merchants).
  • They can serve as a substitute for a checking account.
  • They may let you directly deposit your paycheck onto the card.
  • They may be connected to a network of ATMs for fee-free withdrawals.
  • They're a good tool for teaching kids and teens about budgeting and saving.

Drawbacks to Prepaid Cards

Like pretty much every other product, there are potential drawbacks to be aware of. 

  • There's a potential for high fees for actions including activating the card, reloading it, making ATM withdrawals, and more. And those fees can vary widely between cards.
  • Some businesses won't accept prepaid cards (like rental car companies).
  • They may have less fraud protection than credit and check cards (different cards have different fraud/theft protections).
  • Using one will not help you build credit.
  • Deposit methods might be inconvenient.

Prepaid cards aren't for everyone, and you may find that a traditional checking or savings account meets your needs better. However, if you don't have or can't get a traditional bank account, or you simply want a different way to budget and spend money, a prepaid card may be a good option. Just be sure to shop around and compare features and fees.

Topics:
  • Saving and Spending
  • Saving and Spending
  • Saving and Spending
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
This article was written by Matthew Frankel from The Motley Fool and was licensed as an article reprint. Article copyright 4/12/2015 by The Motley Fool.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
725466.1.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

Here's what we suggest you explore next

Taking your wallet on vacation? Here's how to keep it safe

Tourists are often targeted by pickpockets or thieves. Read here to learn how you can keep your wallet safe on vacation.

Like your checking account, but with some useful extras

All ATM fees reimbursed. No minimum balance. Pay bills. Deposit checks.

You might also like

Is a 700 credit score the magic number?

Credit scores are incredibly important to maintaining your personal finance. This article discusses the possibility of finding the perfect credit score.

The most effective way to pay off debt

Paying off debt can be done in a streamlined and effective manner. This article explores the best ways for you to pay off your debt.

7 shocking ways you could be hurting your credit score

Most are aware of the financial benefits associated with maintaining good credit, but few are aware of these little known ways that you could be accidentally hurting your credit score.

2% cash back on everyday purchases1

Deposit your cash rewards into an eligible Fidelity account. No annual fees.