Prepaid cards: how they work and the fees to check
In short: a prepaid card holds money you load onto it in advance; you can't spend more than is on it. It can be useful if you don't have a bank account yet, but fees vary a lot: monthly, reload, ATM and inactivity fees can add up. Every prepaid card must show a short fee list before you buy it, and registering the card gives you important protections.
Prepaid, debit and gift cards
- Prepaid card: you load money on it and spend with it anywhere the card network is accepted. You can usually reload it, and some can receive direct deposit.
- Debit card: linked to your own checking account.
- Gift card: a fixed amount, usually for gifts, with fewer protections. Anyone asking you to pay a bill with gift cards is running a scam.
Fees to check
- Purchase or activation fee
- Monthly fee, sometimes waived with direct deposit
- Reload fee for adding cash at a store
- ATM withdrawal and balance inquiry fees
- Fees for using the card abroad or in another currency
- Inactivity fee if you don't use the card for a while
Federal rules require a short fee list (the "short form") on the package or website before you buy, and a longer list of all fees. Compare them, and think about how you would use the card.
Your protections
- Register the card with the provider. Registered cards get protection against unauthorized charges and lost or stolen cards, similar to debit cards, if you report problems in time.
- Money on some prepaid cards may be covered by FDIC or NCUA insurance if the card is set up for it and registered. Ask the provider, or read the card's terms.
- Keep the card number and the provider's phone number somewhere separate from the card.
When a prepaid card might fit
For example, while you wait to open a bank account, to give a teenager a set spending limit, or to keep online shopping separate. For everyday use over the long term, a low-cost bank or credit union account often costs less. See Types of bank accounts.
Handy tools
- Monthly budget planner: see what is left each month and how your spending splits up.
General information, not financial advice. Rules, fees and rates change and depend on your situation. Check with your bank, the provider or a qualified professional before you decide.