
A prepaid card works like a traditional debit card but doesn’t require a bank account. Instead, consumers load money onto the card before using it to make purchases.
In this guide, we’ll cover the basics of prepaid cards, how to reload them, and their benefits and drawbacks.
How Prepaid Cards Work
Prepaid cards are an easy way to manage money without a bank account. You load money onto the card and can spend only what you put on it, making it a simple and safe option for budgeting and controlling expenses.
Basic Features
A prepaid card is a handy device for making cashless payments without using credit.
The difference between credit, debit, and prepaid cards is the funding source.
With a credit card, you can spend borrowed money up to a certain limit, which must be paid back later. Having a rewards credit card can earn you a lot of perks, but it can also cost you more money, thanks to interest and fees.
A debit card is linked to a bank account. Rather than using credit, a debit card can only spend the money in its linked account. This is good for preventing debt, but it also means that anyone with the card can access all the funds in that account.
Prepaid cards are similar to debit cards in that they draw money from a limited pool of funds. However, unlike a debit card, prepaid cards only use funds that are directly loaded onto them.
You can use prepaid cards for many reasons, including the following:
- Budgeting: Prepaid cards cap how much money you spend before they need to be reloaded.
- Gifts: Compared to cash or checks, a prepaid gift card is a safe and flexible way to gift money.
- Online Shopping: Prepaid cards allow you to make secure purchases without a bank account. They also provide an extra layer of protection against fraud, as a thief can only gain access to the funds on the card.
- Travel: Money can be challenging to manage when traveling, especially while abroad. In addition to being easier to carry, some prepaid cards allow you to exchange currency in an associated app.
- Child Allowances: Prepaid cards are an excellent way to teach children how to manage money before they are old enough for a bank account.
- Bill Payments: Many electronic bill payment systems accept prepaid cards.
- In-Store Purchases: You can use these cards to buy items at physical stores.
- In-App Purchases: Prepaid cards can be used to make purchases in apps and games.
Prepaid cards give cardholders much of the same utility as debit and credit cards without needing a bank account or credit score.
Using a Prepaid Card
Prepaid cards still have transaction limits and restrictions. This means there is likely a maximum amount you can load onto the card all at once and a limit on how much you can spend in a single day.
Many prepaid cards also limit how much cash you can withdraw from an ATM. These limits help protect you from fraud and ensure you don’t overspend. The card’s terms and conditions lay out these details so you can plan your spending accordingly.
Checking your balance and transaction history on a prepaid card is easy. Most card issuers offer you access to this information via an intuitive interface on their websites or mobile apps. You can navigate to the section that allows you to check your recent transaction history.
Types of Prepaid Cards
Prepaid cards require upfront cash deposits. Most allow you to reload money whenever you wish, but gift cards don’t have this feature.
General-Purpose Reloadable Cards
General-purpose prepaid cards allow people to make secure payments without using cash. With a reloadable prepaid card, the cardholder can add funds in various ways, such as through direct deposit or with a cash load at participating retailers or financial institutions.

They work at point-of-sale (POS) terminals, ATMs, over the phone, and online. Reloadable prepaid cards usually allow bill pay and fund transfers to other cardholders. In addition to these essential payment functions, these cards may have additional features, including the ability to deposit a paycheck or government benefits directly and to send or receive wires.
These cards often come with money management features.
Family Cards
Family cards are prepaid cards designed for multiple family members to use. Parents can load money onto these cards and give them to their children to teach them about money management.

These cards allow parents to monitor spending and set limits, providing a safe and controlled way for children to make purchases. Family cards help with allowances, pay for school expenses, and ensure children have money for emergencies without carrying cash.
Gift Cards
Gift cards are prepaid cards typically given as presents instead of cash. They come preloaded with a specific amount of money, and recipients can use them to make purchases at particular stores or online.

Gift cards are popular for birthdays, holidays, and special occasions because they allow recipients to choose their own gift. Unlike other prepaid cards, most gift cards cannot be reloaded with additional funds once the initial amount is spent.
Benefits and Drawbacks of Prepaid Cards
Prepaid cards have some advantages when it comes to using and managing money. However, you should pay attention to the drawbacks, as some may be dealbreakers.
Benefits
- Budgeting and Spending Control: Prepaid cards help you manage your budget by limiting spending to the amount loaded on the card. This makes it easier to control expenses and avoid overspending. They are ideal for those who want to make a budget and track their spending.
- Accessibility and Convenience: Prepaid cards are easy to obtain and don’t require a credit check or bank account. You can use them in person or online — anywhere you could use a credit card. This is why prepaid cards are popular for many unbanked or underbanked consumers.
- Security and Privacy: If you lose a prepaid card, you can only lose the money on the card. Plus, if you use a prepaid card for online purchases, the site cannot access any of your personal banking information.
- No Credit Check Required: Prepaid cards are great for people who can’t or don’t want to get a line of credit to use a card. That could be because they don’t have a credit score or they have a bad credit history, likely leading to them being turned down for a traditional credit card. Whatever the reason, you can get a prepaid card without fuss or a credit check.
- Helps Avoid Debt: Any financial product that relies on borrowing money — such as a credit card or home equity line of credit — carries the risk of a user being unable to repay the borrowed funds. This is why some people prefer to stick to cash or cash-equivalent platforms. In this respect, the prepaid debit card pays in the same way cash does. Since the platform cannot be accessed beyond your established limits, it does not carry the same risk as other payment systems.
Drawbacks
- Fees and Charges: Many prepaid cards have fees attached to them. You’ll often pay an activation fee to get started, for instance. But you also pay other fees, including monthly maintenance fees and various types of ATM withdrawal fees, among others. Over time, those fees can eat into the money you use to fund the card.
- Limited Consumer Protections: Prepaid cards don’t offer the same fraud and theft protections as most debit and credit cards.
- Restrictions and Limitations: Prepaid cards can come with various gotchas — hard-to-find details about assorted fee structures and rules. For example, cards may restrict the average daily amount you can put on them, what you can do with that card at the point of sale, or how much you can withdraw from at an ATM.
- No Interest Earned: Money placed on a prepaid card does not earn interest. Unlike certain savings or checking accounts, the cash put on a prepaid card simply stays as is — it remains dormant for as long as you keep the money on the card.
- No Ability to Build Credit: Using a prepaid card won’t build your credit history. Activities associated with these types of cards aren’t reported to the credit bureaus. It’s a hassle if you’re trying to establish or re-establish your credit.
Even with their disadvantages, prepaid cards provide a lot of value for a small fee. They can also be valuable tools for teaching young adults financial responsibility.
Choosing a Prepaid Card
To choose the right prepaid card, review several factors with your financial situation in mind, including your spending habits and money management skills. A smart comparison includes not just looking at how the card can serve you but also being realistic about its downsides.
Assess Costs & Fees
Many prepaid cards require activation fees and have monthly charges, sometimes as high as $10. Pay attention to all the fees, as they are essentially the costs of using the prepaid card.
Prepaid cards often also have transaction and ATM fees. If you use the card frequently, particularly for small purchases or cash withdrawals, these can add up to a sizable amount. To avoid any unpleasant fee surprises, understand the fee structure of each card.
Compare Card Features
Find a prepaid card that allows you to manage your account online. This lets you keep track of your balance, see where your money is going, and manage your card without visiting a physical retailer to check your details.

This increases the ease of use and lets you keep track of your spending. You should have the opportunity to file a dispute online if you see an unidentified charge.
An efficient mobile app can make a prepaid card even more convenient. Investigate the app by looking at its reviews. A good app lets you manage your money wherever you go from your smartphone.
Consider Your Goals and Needs
Think about how you plan to use the prepaid card. If you mainly need it for shopping, look for cards accepted at many stores. For travel, consider cards that offer additional security and have wide international acceptance. You will be best off choosing a card that fits your lifestyle.
Some prepaid cards only work with specific merchants or types of purchases. Make sure the card you choose is accepted where you plan to use it to avoid unpleasant surprises. Checking merchant acceptance beforehand can save you from inconvenience or embarrassment later.
Find out how you can reload money onto the prepaid card and any limits that apply. Some cards offer easy reloading through direct deposit or bank transfers, while others may have more restrictions. Knowing its limits can help you plan how often to reload the card.
How to Load and Reload Prepaid Cards
There are various methods for putting money on a prepaid card. Some are very simple, while others may require more time and effort. The sections below give an overview of what to expect during the card-loading process.
Direct Deposit

Many people prefer prepaid cards because they’re easy to use for direct deposits. Employers and the government often establish direct deposit arrangements that wire your paycheck or tax refund to your account on the same day.
Many cards don’t charge a fee for direct deposits.
This setup requires you to provide the card’s account and routing numbers. It eliminates the need to visit a bank or reload location. Some prepaid cards add perks for using direct deposit.
Bank Transfers and Cash Reloads

To fund a prepaid card, you can move money from a checking or savings account. You can manage the process online or in an app.
Loading cash from your bank or credit union account to the prepaid card makes it a handy tool. Those working with multiple accounts or various types of payees will find it especially useful.
Another option for putting money on your prepaid card is cash reload services at retail locations. You can add money directly to your card at the store.
Many places offer this method, possibly even the place you already use for money orders. However, this may be less convenient and include additional fees.
Mobile App and Online Transfers

Mobile check deposits allow people to use smartphones to take images of checks they want to deposit in their bank accounts. This system does not require you to travel to a branch office or use an ATM, it offers a level of convenience that you’ll appreciate.
Reloading prepaid cards through an online transfer service is also quite convenient using services such as PayPal.
This is usually a good method for individuals who receive online payments or prefer to transact digitally.
Prepaid Cards vs. Other Financial Products
This chart compares the critical features of prepaid cards with competing financial products. It provides information to consider when deciding whether to use a prepaid card, debit card, credit card, or bank account.
FEATURE | PREPAID CARD | DEBIT CARD | CREDIT CARD | TRADITIONAL BANK ACCOUNT |
---|---|---|---|---|
Money Source | Loaded with money before use. | Linked directly to your bank account. | Borrows money up to a limit. | Deposits from various sources. |
Spending Limit | Spend only what is loaded on the card. | Spend only what is in your bank account. | Spend up to the credit limit set by the issuer. | Limited by account balance. |
Bank Account Required | No | Yes | No, but it helps in managing payments. | Yes |
Building Credit | No | No | Yes, helps build your credit score. | No |
Interest Charges | No | No | Yes, if the balance is not paid in full each month. | No |
Overdraft Risk | No | Yes, if overdraft protection is enabled. | No, but exceeding the limit may incur fees. | Yes, if overdraft protection is enabled. |
Rewards | Usually, there are no rewards. | Some offer rewards, but it’s rare. | Many offer rewards such as cash back, points, or travel miles. | Usually, there are no rewards. |
Fees | May have fees for activation, monthly maintenance, and ATM withdrawals. | There may be fees for overdrafts, ATM use, and monthly maintenance (if they do not meet requirements). | It may have annual fees, late payment fees, and interest charges. | It may have fees for maintenance, overdrafts, and ATM use. |
Typical Benefits | Easy to obtain without a credit check and helps with budgeting. | Direct access to bank funds often includes fraud protection. | Helps build credit, offers rewards, and can provide purchase protection. | Secure place to store money and access various banking services like checks and loans. |
Typical Drawbacks | Various fees and limited consumer protections. | Potential overdraft fees. Requires a bank account. | Interest charges, potential for debt, annual fees. | It may have monthly fees, and management may be required to avoid overdrafts. |
Accessibility and Convenience | Easy to get and use, no credit check needed. | Convenient for everyday spending, linked to a bank account. | Widely accepted and valid for large purchases and emergencies. | Provides a full range of banking services and easy access to funds. |
Security and Consumer Protection | Limited protections compared to other cards. | Includes fraud protection and is safer than carrying cash. | Substantial consumer protections and fraud liability limits. | Strong protections, insured by the FDIC. |
Armed with this information, you can compare prepaid cards, debit cards, credit cards, and traditional bank accounts. Understanding the fundamental differences can help you select the best financial tool to suit your needs and manage your money effectively.
Prepaid Cards Offer an Accessible Alternative to Banks and Credit Cards
Although prepaid cards offer an accessible option compared to banks and credit cards, they are quite the opposite regarding complicated transactions and fees. These cards provide an as-easy-as-cash way to manage one’s finances.
They can be loaded with a few hundred dollars and do not require many financial checks that accompany a banking relationship. At the same time, relying on a prepaid card could mean you are underbanked or outright unbanked. Prepaid cards have few financial benefits, but their prepaid aspect makes them ideal tools for budgeting.