Prepaid cards have become a popular financial tool for millions of consumers all over the world. A prepaid card is just another alternative to cash, checks and credit cards being provided to shoppers everywhere.
Although it functions like one, it is different from a personal bank account debit card. A prepaid card enables you to spend money you have loaded to the card in advance and prevents you from spending more than what is available. Meanwhile, a bank debit card is already linked to your checking account and you can spend the available funds and perhaps even an overdraft.
An Inside Look at Prepaid Cards
In the United States, for instance, a 2014 study by Mercator Advisory Group discovered that more than half (56%) of adults purchased a prepaid card in the previous year- this is up from 47% in 2012. Also, according to the same study, the number of payments made with prepaid cards soared 18.5 percent each year between 2006 and 2012, which is the fastest growth rate for any type of payment option in those same time periods.
Over the years, a growing number of consumers in North America, Asia and Europe have discovered the wide variety of advantages and benefits that come with prepaid cards.
Here are just some of the advantages of using prepaid cards:
- Being able to make purchases online, in person or by telephone.
- Giving prepaid cards to family, friends and colleagues as gifts.
- Withdrawing cash from a financial institution or an ATM.
- Setting up a direct deposit in order to receive wages or funds.
Despite the widespread use of prepaid cards, it should be noted that they have zero impact on either building credit or your overall credit score. Therefore, if you have gotten into a bit of trouble with your credit rating as of late and you thought you could give it a shot in the arm with a prepaid card then you are out of luck.
Today, there are all different kinds of prepaid cards available for consumers. Here are the five most common types:
A reloadable card may look like a credit card and you use it like a debit card, however, it is different. This type of card permits users to top up their funds after making a purchase.
These are popular because some reloadable cards do provide users with perks and benefits, like purchase protection or roadside assistance. Most cards do have consumer protections in place.
You just have to be wary: if the reloadable cards are protected by the Federal Deposit Insurance Corporation (FDIC), you may be required to provide personal information, such as name, address, Social Security Number, birth date and other relevant personal data.
When you don’t know what to get your friend, boss, mother-in-law or distant cousin for the holidays then the gift card is the ultimate choice.
Gift cards are non-reloadable and are given to someone as a gift. With a limited amount of money ($20, $50, $100, etc.), the gift card user can shop at their favorite store, at any shopping mall or online. Some gift cards are limited to specific companies, while others can be used anywhere.
Rather than giving someone a wad of cash for that special day, you can provide them with a prepaid, store-value money card that can be issued either by a financial institution or a retailer. Just be sure that, if you receive a gift card, you use all of the money on the piece of plastic - $1 billion in gift cards went unspent in 2015!
One more thing: if you're able to shop around, you could save as much as 35 percent on gift cards.
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A reloadable card is used by parents in order to educate their teenagers about financial responsibility. As more and more young people struggle to handle money given to them by their parents, this card is gradually becoming popular and is starting to be offered by various banks.
Teen cards can be used anywhere Visa or MasterCard is accepted. You can also pay bills online with teen cards, get cash back and it takes only minutes to apply.
Parents have the ability to monitor transactions, limit their children's available funds and teach them about how to shop, how to be responsible with money and how to be fiscally conservative.
Simply put: you can teach teenagers about personal finance with teen cards.
Whether you're an avid traveler or you're someone who rarely travels, travel cards are reasonable alternatives to using cash, credit and debit cards or traveler’s checks when you're abroad.
Travel cards are prepaid foreign currency cards that are accepted in most places. You simply pre-load the travel cards with a foreign currency and use it when you want to make a purchase.
Moreover, some offer users emergency card replacements, zero liability for lost or stolen cards and even reimbursement for lost luggage. These are certainly worthwhile alternatives to more traditional forms of payment options.
Although not as ubiquitous as the aforementioned prepaid cards, payroll cards are beginning to be prevalent. A payroll card serves as an alternative to direct deposit or paper checks. An employee can request payroll to have their salary credited to this card.
They are issued by nearly all major payment processors and they enable workers to use these cards anywhere credit cards are accepted. Also, employees can withdraw the funds from these payroll cards at a bank or an ATM or by requesting cash back when buying an item.
As you can tell, there is an array of prepaid cards available on the open market. Which one you choose will ultimately depend upon what your primary purpose is.
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Primary Functions of Prepaid Cards
With that being said, here are the three primary functions of prepaid cards:
A Teaching Tool
Let's face it: most people, both old and young, need to improve their personal finance acumen.
Prepaid cards can serve as a tremendous teaching tool. This is perfect for a teenager looking to understand the rules of money or for an adult who is terrible with money. They can assist you in learning about personal restraint, how to shop for the best deals or organize your hard earned money.
A prepaid card gives you a crash course lesson on the new rules of money and banking.
An Alternative Tool
Did you know that seven percent of the U.S. population are underbanked?
This means that they have opened a bank account, but they still use alternative financial services like payday loans, check-cashing services and pawn shops. However, these unconventional financial options come with costs totaling $141 billion every single year because of high interest rates, excessive fees and other exorbitant costs.
When the underbanked or unbanked have a check to cash, they're paying a hefty cost to do so.
A prepaid card can act as a much better alternative tool to traditional banking account options. With a prepaid card, you can have the ability to directly deposit checks. Also, you can avoid the high ATM withdrawal fees, which are continuing to go up annually.
A Safe Online Payment Tool
Cyber attacks are occurring on a regular basis, and this is concerning shoppers everywhere. Despite surging online shopping numbers, many are still apprehensive about using their credit or debit cards to make purchases on various web stores due to fears about security breaches and data infiltration. What if an unscrupulous individual steals your private information?
You don't necessarily have to worry about this with a prepaid card. Since you upload the amount of funds you want, you are not risking your entire savings or available credit by buying a product online. Should an incident happen, the criminals are only taking $100 or $200 from you as opposed to thousands of dollars from your checking or savings account.
Prepaid Cards' Primary Uses
With these benefits in mind, you may be interested in applying for a prepaid card right now. But wait; not so fast! Before you apply for a prepaid card, you have to perform your due diligence and be on the lookout for certain features.
The very first prepaid card benefit to seek out are low fees.
The second prepaid card characteristic to hunt for is a card that will match the reasons for your intended use. Are you using a prepaid card for additional online payment security? Do you want to limit your holiday budget? Are you looking to teach your 16-year-old about financial responsibility?
It's these features that you have to find in order to maximize the advantages of prepaid cards. They are convenient, affordable, secure and modern.
They can make shopping easy, while adding a cap on your free-spending ways. They can teach people about personal finance, while giving some fathers and mothers the flexibility to monitor a careless teen's spending habits. Ultimately, prepaid cards offer us many benefits for many uses.
Indeed, prepaid cards may not be as exciting as flicking your wrist, swiping your phone or tapping a piece of plastic, but they do provide users with a practical payment option.