Nowadays there are many options to carrying cash, and the one choice that is gaining popularity is the Prepaid Debit Card, also known as the Prepaid Credit Card. Although these debit cards are being advertised on television, radio and the internet, their use and purpose is clouded in mystery. We will explain what they are and how to use the prepaid debit card.
Terms to Know
o Branding – Adding Visa or MasterCard logo to a debit card, thereby backing the debit card with the benefits and security of these credit card companies.
o Debit – Deducting from an existing balance.
o Load – Adding money to the balance of the card.
o Reload – Ability to add more money to the balance once the original ‘loaded’ balance has been depleted.
“Prepaid Credit Card” – Debunking the Myth
First, we will clear up the most common misconception with these cards. They are not credit cards in the traditional sense. A “traditional” credit card is a card that draws off a credit line balance with each use/purchase. A prepaid debit card is a card with either a Visa or MasterCard logo and can be used to pay for goods or services anywhere Visa or MasterCard is accepted, however all purchases are drawn from a prepaid balance that you have loaded onto the card. Once the balance has reached $0, you are no longer able to use the card for purchasing until the balance is reloaded.
Evolution of an Industry
In the beginning, in terms of banking, there was an Automated Teller Machine debit card. This type of card allowed the holder to access their bank account balance without having to physically go into the bank. The ATM card holder was able to go to a new type of cash access point (the Automated Teller Machine) usually located outside their bank and get cash out, debiting from the available cash balance of their bank account. As this new type of bank account debiting system evolved, merchants and banks teamed up to allow ATM card holders to access their bank accounts at various locations, such as a grocery store or other kiosk ATM machines located around town.
Through gradual progression of the financial industry, Visa and MasterCard got involved and joined the efforts of banks and merchants to brand the ATM card with either the Visa or MasterCard logo. These new Visa or MasterCard branded ATM debit cards now had the ability to be used to pay for goods and services anywhere a Visa or MasterCard credit card was accepted, while still drawing off the bank account balance the ATM card is associated with.
The next step for Visa and MasterCard was to create standalone “Gift Cards”, which were originally loaded with a prepaid balance and could be used just as a Visa or MasterCard, but purchases were debited from the actual prepaid balance, and required no bank account. These Gift Cards could not have their balance reloaded.
This brings us current to today’s financial landscape, where Visa and MasterCard have introduced prepaid debit cards, which operate like a hybrid ATM card (minus the bank account) and Gift Card (but the balance can be re-added to). The card holder can load money onto the debit card, can access the balance anywhere that Visa and MasterCard is accepted, and can reload money onto the card balance.
The Visa or MasterCard Prepaid Debit Card
Now that you have a good idea of what a prepaid debit card is (and what it isn’t), it’s time to find out what the benefits are of having this new type of debit card.
Features and Benefits
o No Credit Check – A credit check is required when you apply for credit, since you are going to be trusted to pay the debt back. Since you are adding cash onto the card, and since the balance cannot go into the negative, you are not going to be in a situation where you are required to pay anything back, or owe any money from exceeding the balance.
o Safety and Security – Carrying cash nowadays is a risky venture. If you lose cash, you are out that amount of money and cannot conceivably recover the amount. Since you can load or reload the balance of a prepaid card with cash (almost anywhere), and since the cash balance on the card is branded by either the Visa or MasterCard logo, the same security and fraud protection is extended to the prepaid balance. If the card is lost or stolen, the prepaid card holder is not held liable for any fraudulent transactions. Your money is safe and secure.
o Bank Account Features – Most prepaid debit cards have bank account features, such as check writing privileges (the amount of the check is deducted from the card balance). You can also have your employer (although employment is not required to apply for card) directly deposit your payroll check onto the card balance. Since these are very attractive incentives, most prepaid debit cards have these features.
o Reload the Balance Anywhere – Most prepaid debit cards allow you to reload the balance almost anywhere. You can load via PayPal, at most bank branches, any Western Union or MoneyGram location and even by cashiers check or money order.
o Shopping on the Internet – Nowadays, you can’t be too safe when shopping online. Prepaid debit cards are a great choice in this situation because you can determine how much to load onto the card and since the balance cannot go into the negative, the chances of someone accessing your card information and running up a horrendous debt are non-existent.
o Other Benefits and Features – Since prepaid debit cards are branded with either the Visa or MasterCard logs, the prepaid cards have the same perks of regular credit cards. Some of these perks include roadside assistance, auto rental insurance, extensions on original manufacturer warranties, automatic bill pay and even merchandise rewards and cash rebates.
The Bottom Line
The best way to carry cash nowadays is a prepaid debit card. It’s also a great way to give a gift or pay kids an allowance. As a gift, the prepaid card is an excellent choice because the prepaid card is accepted anywhere, and doesn’t limit the recipient to one particular store or service. As a child’s allowance tool its ideal, since the transactions on a prepaid debit card can be tracked and accounted for, down to the last penny. As an online shopping resource, it’s handy because the card balance cannot be exploited. As a straight cash card, it can be used anywhere and just as safe as a credit card.
Good luck and remember to read all the facts and find out all the information before making important financial decisions.
