5 practical things you need to know about prepaid cards
You see them in the grocery store checkout line, on the counter at your favorite boutique, and at the hostess station when you go out to eat. There may be one in your wallet or in the birthday card waiting to be opened on your kitchen counter. You may even have some stored on your smartphone.
We’re talking about prepaid cards and they’re available for every type of business from big box stores to quick serve restaurants to online movie streaming services. They are also the most requested gifts year after year. Whether or not you frequently purchase and use them, here are five things you should know about a prepaid cards.
1. There are two types of prepaid cards: closed loop and open loop
A closed loop card can only be used at a specific business or group of businesses—think Starbucks or Target. An open loop card is like a preloaded debit card and can be used anywhere that accepts the payment network the card is branded with, such as Visa, MasterCard, American Express, and Discover.
2. Be aware of possible fees
While many popular closed loop prepaid cards do not charge fees for services like funds reload, account balance check, or inactivity, some do. And fees are more common among open loop prepaid cards which may charge for activation, monthly maintenance, and cash withdrawal.
3. Using a prepaid card doesn’t help your credit
Since you aren’t borrowing money to make a purchase with a prepaid card, using one won’t build your credit line. However, prepaid cards make it more convenient for consumers who don’t have a credit card to pay for purchases instead of using cash or checks.
4. Security features vary
While some prepaid cards offer protection in the event of loss or theft, others do not. Open loop cards may look like their debit and credit card counterparts, but do not enjoy the same fraud and liability protections. So if your prepaid card is stolen and you have not activated the fraud protections available, or none were offered in the first place, you could be out of luck.
5. Prepaid cards can be an effective budgeting tool
One of the benefits prepaid cards offer is a convenient way to budget funds. For example, if you want to control how much you spend at the local coffee shop, you can limit purchases to a reloadable prepaid card. When the card’s funds run out, so do your cappuccinos. Just make sure you load a dollar amount that will fulfill your caffeine fix, but not negate your plan to stick to a budget.
Prepaid cards are convenient, easy to use, and eliminate many of the hassles of paying with cash. Now that you know more about them, you can feel even more confident in purchasing the cards for others or for yourself.