What is the difference between a debit card and a prepaid debit card?
Since both are called debit cards, many people tend to confuse these two types of cards. However, a prepaid debit card is very different from a bank debit card. A bank debit card is directly linked to your checking account, whereas a prepaid debit card is not. With a prepaid debit card, you pay in advance to add the funds to your card so that when you make a purchase, money gets deducted from the funds that were loaded onto the card. For example, if you deposit $400 onto your prepaid credit card and you spent $50, then you only have $350 left to spend. In this way, prepaid debit cards function similar to a gift card. In most cases, you cannot spend more money than what you put on your prepaid debit card. Once you use all the funds on your prepaid debit card, you are no longer able to make any purchases unless you reload the card with additional funds.
With bank debit cards, if you opt into your bank’s overdraft protection service, the bank covers the amount of a purchase that exceeds what you have in your checking account. Later, you will have to pay the bank the overdraft, along with a fee for not having enough funds in your account.
There is less consumer protection with prepaid debit cards in the event of loss or a disputed charge compared to bank debit cards. Losing your prepaid debit card is like losing cash. However, since prepaid debit cards are not linked to your bank checking account, you don’t have the risk of having your checking account drained when you lose your card. Your losses are only limited to the amount on your prepaid debit card.
Some people like to use prepaid debit cards because they find it as a way to control their spending. They decide how much they want to put on their prepaid debit card, thus putting a limit on how much they want to spend. However, keep in mind that prepaid debit cards can also have a lot of fees, including reload, account maintenance, and activation fees.
Read more to see if you should apply for prepaid debit cards.