What are the Differences Between Prepaid Cards vs Debit Cards?
When I first started using cards to make payments and purchases, I didn’t really know the first thing about what are the differences between prepaid cards vs debit cards so I decided to do research about them and share everything I’ve learned for everyone who felt as lost as I did!
The main difference between prepaid cards and debit cards is that you need a bank account for one of them but not for the other. If you want to have your own debit card, you must also have a bank account directly linked to it. But for a prepaid card, you just need to keep reloading the card so you can use it.
Although these cards won’t have an effect on your credit score, they do provide you with a convenient way to make payments and purchases when you don’t have cash on-hand. These days, the most commonly used cards are prepaid and debit cards. But do you really know the differences between them? How about all of their features? To help you understand them better, I’ve gathered some extremely helpful information for you.
So… How Different are Prepaid Cards from Debit Cards?
The advent of electronic payment cards such as prepaid and debit cards have redefined how we spend money in this modern world. Apart from being able to enjoy faster transactions, such cards also come with exclusive deals and rewards we can obtain from making cashless transactions.
But how different are they from one another?
Let’s start with prepaid cards. These aren’t linked to a bank account so you don’t need one to own a prepaid card. All you have to do is the place or “load” money in the card in advance and start using it. Yes, it’s that simple.
Debit cards, on the other hand, are very straightforward. Since a debit card is directly linked to your bank account, you can use it to purchase items as long as there is money in that account. Again, it’s that simple to use.
As you can see, either option is simple, convenient, and allows you to spend even if you literally don’t have cash in your pockets. Now let’s take a look at the key differences (and similarities) between the two types of electronic cards:
- Types
Both prepaid and debit cards come with either a MasterCard or Visa logo. But prepaid cards can sometimes be linked to specific brands or businesses such as restaurants, gas stations, and stores.
- Function
In terms of how they function, prepaid and debit cards are similar. You can use them both to spend money whether you want to buy stuff, make payments, and so on.
- Source of funding
As aforementioned, the funds for prepaid cards come from the money you place into the prepaid card account. So if you forgot to reload your card, you won’t be able to use it. For debit cards, since they’re linked directly to your bank account, the funds come from that bank account they’re linked to. As long as the bank account has money, you can keep on using your debit card.
- Cost
Usually, debit cards come free but there are some banks which may charge you a service fee if you apply for one. For prepaid cards, you may have to pay a fee each month to avoid the deactivation of the card. This is especially true for prepaid cards branded as MasterCard or Visa. So if you want to keep your prepaid card activated, make sure that it contains enough money to cover the monthly fee.
- Limitations
Just like any other electronic cards, both prepaid and debit cards have limitations. Prepaid cards are limited to the total amount of money you’ve loaded into them. Once the money runs out, expect your purchases to be declined. Also, prepaid cards which are linked to businesses may come with an expiration date. Make sure you’re aware of this date so you can spend all the money you’ve loaded in the account before the expiry date.
In the same way, debit cards are limited to how much money you have in the account they’re linked to. If you have the tendency to spend more than the money in your account, you may apply for overdraft protection. But keep in mind that this comes with fees and interest.
The Features of Prepaid Cards
Now that you know more about the key differences between the two types of cards, let’s go through their individual features. Knowing these features will also help you see the differences between these cards to help you choose which one to apply for. Here are the important features of prepaid cards:
- They are issued instantly. A lot of people choose to acquire prepaid cards for the purpose of a single purchase such as for an urgent overseas trip or as a gift.
- The strongest feature of prepaid cards is the anonymity they provide. You can request for this card either by presenting a passport or you can also request for it anonymously. Since it’s not linked to any bank accounts, you can allow another person to use the card. Of course, this also becomes its most dangerous feature.
- It’s not linked to any of your bank accounts. This means that even if it happens to get lost or stolen, the person can only profit from the money you’ve reloaded into the account.
- There are no age restrictions when applying for prepaid cards. This means that you can even get a prepaid card for your child as a present.
- When the prepaid card expires, it terminates the card as well as the balance remaining in it. Also, in the event that you lose the card, you can’t have it blocked or re-issued.
With all of these features, a lot of people prefer prepaid cards for one-time purchases instead of long-term use. Of course, it all depends on how you handle the card, how you plan to use it, and how much money you plan to place into the card for your purchasing needs.
The Features of Debit Cards
Based on statistics, debit cards are the most common types of electronic cards requested. These are like the modern and more convenient replacement for cash. If you can’t decide which type of card to choose, here are the features of debit cards to make the differences more evident for you:
- They’re very easy to use and since they’re linked to your bank account, you can request for card statements to receive a record of all the transactions you’ve made.
- Debit cards are accepted all over the world, even in the online world. You don’t even have to possess a debit card from a different country as the currency conversion happens automatically.
- Again, since debit cards are linked to a bank account, you can also enjoy special discounts and offers from the business partners of the bank.
- You have to be very careful with your debit card because it’s linked to your bank account. If you lose it, you would have to block it immediately so the person who picks it up doesn’t gain access to your bank account.
- Also, some debit cards come with an intraday limit which means that there’s a limit on the withdrawals you can make each day with them.
Different Types of Prepaid Cards and Debit Cards
Knowing the individual features of prepaid and debit cards makes it easier to see how different they are. You should also know that there are different types of prepaid cards and debit cards as well. Learning about them will help you determine which one is best for you:
Prepaid cards
- Open-Loop: You can use this in various locations within an associated network.
- Closed-Loop: You can use this only in a group of establishments or a specific retailer.
- Single-Use: This comes with a pre-set amount and you can dispose of it after spending the whole amount on it.
- Reloadable: You can use this as often and as long as you need as long as you keep reloading money on it.
Debit cards
- Online: This card requires electronic authorization each time you use it and it also comes with a PIN.
- Offline: This card requires you to affix your signature to validate each transaction.
- Prepaid: For this card, you must first pay the whole amount before you can use the card to make payments or purchases.
Related Questions
How do I buy a Prepaid Card?
First of all, you must know that there are different kinds of prepaid cards available. Do research on the type of card you need beforehand. Then you can buy a prepaid card over the phone, from some credit unions and banks, online, or from retail locations.
Are Prepaid Cards the same as Credit Cards?
Prepaid Cards are different from Credit Cards. For one, prepaid cards aren’t linked to any of your bank accounts. For credit cards, it’s like you’re “borrowing” money in advance but for prepaid cards, you can only spend the money you’ve loaded in the card.
How do Debit Cards differ from Credit Cards?
Generally, debit cards and credit cards have an identical appearance. But debit cards allow you to use the money you have in your bank account while credit cards allow you to borrow money from the bank up to a set limit.