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Distinction Between Prepaid Cards and Debit Cards
Though prepaid and debit cards perform in similar ways, there are differences between the two and consumers ought to clearly understand the similarities and distinction before selecting one over the other.
Earlier than we get to the differences, let's look on the comparableities. Each cards can be utilized wherever the issuer is accepted - whether or not Visa, American Categorical, Discover or MasterCard. Reload-able prepaids can also be used at ATMs to withdraw cash just like debit cards. Additionally, prepaid cards can be utilized to shop on-line and pay bills (so long as they're registered), similar to debit cards. Nonetheless, there are variations:
The primary major distinction between a prepaid and a debit card is that debit cards are linked to a bank account and draw money from that bank account to cover any cost made using the card. Prepaid cards have a pre-loaded amount and the person is able to use only the amount of cash loaded on the card. Some prepaids are reload-able, which implies that the consumer can add more cash to the card after the initial amount is depleted, while others are for one time use only, meaning that after the value on the card is exhausted, the card is useless.
Another difference between the 2 is the difficulty of protection. Debit card; because they're linked to bank accounts do have some protection against fraudulent purchases. Most banks will refund cash to a checking or financial savings account if the card was used fraudulently. While some prepaids provide this protection, it varies by issuer and largely applies to reloadable prepaid cards.
The other difference between a debit and prepaid card is the possibility of overdraft. While nearly all prepaid cards are limited to the sum of money loaded on them, and therefore nearly eliminates the risk of overdraft, debit cards will be overdrawn, leading to fees that can add up quickly. In some cases, banks will charge multiple overdraft fees on overdrawn transactions occurring the identical day. You subsequently have to keep an eye in your account to keep away from getting caught up in this situation.
Finally, there is almost a one hundred% guaranteed approval for prepaid cards. Even with reloadable prepaids that require personal info like social security number and address, consumers are rarely denied as long as they provide the knowledge requested. However, not all applicants are approved for bank accounts, and therefore not all candidates that apply for debit cards are able to get them. That makes the reloadable prepaid cards more attractive to the unbanked or those that are unable to qualify for bank accounts.
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