Prepaid Cards: What Are They and How Do They Work?

Understand what prepaid cards are and how they work. Also, learn about how to get a prepaid card and which one will suit your needs. Read more.
Colby Brin
June 27, 2023
min read

You’re familiar with debit cards and credit cards, but what are prepaid cards, and how are they different? Do they offer any advantages that other cards don’t, and are there any drawbacks?

Despite being used in similar ways to both debit and credit cards, there are some significant differences - and some unique advantages - that prepaid cards offer cardholders.

Prepaid cards aren’t connected to a bank account, so the funds you withdraw don’t come from your checking account; they come directly from your card. You can also get a prepaid card without going through your bank.

So, let’s discuss what prepaid cards are, and how they differ from debit and credit cards, as well as the advantages and disadvantages that they offer.?

What Are Prepaid Cards?

Prepaid cards work in a similar way to debit and credit cards. In fact, they’re used as an alternative to your regular debit or credit card in several circumstances for the advantages they offer.

Prepaid cards can be used just like a regular debit card to purchase and spend with most merchants. However, unlike a debit or credit card, you can only spend the balance available on the card.

Depending on the type of prepaid card, you can load it with funds by transferring funds from a bank account. Or the card might come with a pre-set amount you can spend, which you discard when the balance has reached zero.

What are prepaid cards used for?

Prepaid cards come with advantages not offered by other cards.

For example, since cardholders can only spend the balance on the card, they’re helpful for saving, budgeting, and staying out of debt. Some prepaid cards (like HyperJar) have an app to help you save, budget, and track your spending.

Prepaid cards can also be used to reduce costs when spending abroad. Prepaid travel cards come with a host of advantages that make travelling cheaper.

They can also help to introduce your child to the world of financial responsibility.

What are prepaid kids cards, and how are they used to help kids financially?

Before they’re ready to open a bank account, a prepaid kids’ card gives children a risk-free way to manage their own money.

It also gives parents a place to put their children’s pocket money without getting cash out, which is less convenient and more easily lost by kids. A prepaid kids’ card also allows children to make purchases online.

Finally, with an accompanying app to track their spending, kids become more conscious of their money and spend more thoughtfully. Find out more from our ultimate guide to debit cards for kids.

How to Get a Prepaid Card

Want to know how to get a prepaid card and where to get prepaid debit cards? Then follow these steps.

First, browse the prepaid cards on the market. These might be from a traditional bank, an online bank or an online fintech company. Choose the one that best suits your needs and is most affordable.

Next, navigate to the site of your chosen prepaid card provider, where instructions will show you how to get a prepaid card and where to get prepaid debit cards.

This can be as simple as downloading an app, navigating onto the profile tab and clicking ‘order card’. For other prepaid cards, you’ll need to fill out a lengthy online form. Some prepaid cards – such as gift cards – are available at physical retail stores.

Whatever the case, the card provider you choose will provide all the information you need to discover where to get prepaid debit cards and how to get a prepaid card step by step.

How Do Prepaid Cards Work?

So, now that we know how to get a prepaid card, we can move on to how prepaid cards work.

After applying for and obtaining your prepaid card, you’ll register the card online or through your local bank branch.

From here, you load the amount of money you want on the card. This balance represents the amount you can spend on the card (until you load it up again). Depending on the prepaid card provider you choose, you can do this through your local bank branch, online via the provider’s website or instantly through an app.

Once you’ve loaded up your card, you can use it like a regular debit card to make purchases. However, many prepaid cards don’t allow you to make cash withdrawals from ATMs, so if this is a feature that you’re likely to need, then make sure you compare card providers.

There are a few different kinds of prepaid cards depending on what you need it for.

Reloadable prepaid cards

Reloadable prepaid cards are the type of cards we’ve described above. These cards can be used like regular debit cards with all merchants (the ones that accept card payments) and can be reloaded with funds whenever the card’s balance is low – hence, reloadable.

Prepaid travel cards

How do prepaid cards work abroad? Well, just like a general-use reloadable prepaid card, prepaid travel cards work like regular debit cards once loaded.

With prepaid travel cards, however, the card is designed for convenient and cheap spending when abroad.

Card providers partner with card processors to give cardholders the best exchange rate. What’s more, most travel cards don’t charge foreign transaction (FX) fees – unlike a regular debit or credit card – making spending abroad cheaper.

Prepaid gift and retail cards

How do prepaid cards work when they’re not reloadable? Unlike reloadable cards, gift and retail cards come with a predetermined amount, which could range from £10 to hundreds. Once this amount is spent, the card can’t be reloaded.

With gift and retail cards, the balance on the card can only be spent with the retailer(s) shown on the card. Sometimes, this is just one shop. With others, you can spend the amount with different merchants, such as high-street fashion stores or restaurants. You can also get these types of gift cards online.

What are the Disadvantages of Prepaid Cards?

So, we’ve discussed what prepaid cards are, and listed some of the benefits they offer over debit or credit cards, but what are the disadvantages of prepaid cards?

When determining what are the disadvantages of prepaid cards, here are some costs you should consider:

·   Some prepaid cards have application fees

·   Some charge a monthly fee for using the card

·   Some charge transaction fees on purchases

·   Some charge every time you reload your card

However, choosing the right prepaid card can avoid being charged for any of these things.

Which is Best, a Prepaid Debit Card or a Credit Card?

Prepaid debit cards, regular debit cards, and credit cards all have their uses and advantages.

For example, credit cards are a valuable tool for building up your credit score. By paying off your balance on time each month, you’ll find getting a loan or mortgage easier. A good credit score also means that the loans you have access to will have lower interest rates, making them more affordable.

However, with credit cards, there’s also a high risk of getting into debt, and if you don’t pay your balance off each month on time, this will damage your credit score instead.

With prepaid debit cards, you can only spend the money you have so you can avoid getting into debt.

What’s more, unlike regular debit or credit cards, prepaid travel cards don’t charge fees for spending abroad, which can save you significant amounts while travelling.

Prepaid debit cards are also great for kids and young people who don’t have a bank account yet. Without opening a bank account, kids have somewhere to store their money electronically and don’t have to carry cash. A prepaid card for kids or teens can benefit both children and their parents when it comes to chore money and allowances.

HyperJar's Prepaid Card for Everyone

The HyperJar prepaid card is for everyone – including families, teens, and kids aged 6+.

With no fees – even abroad with the HyperJar prepaid travel card – HyperJar makes spending safe, convenient and easy wherever you are. The accompanying HyperJar app helps kids and adults make the most of their money with saving and budgeting features to make it stretch further.

Continue Reading

If you want to learn more about money management and how you can use it to strengthen your financial position. Check out our blog to learn more money-saving hacks or to help your family become financially savvy with our young adults’ guide to budgeting and guide to kids’ debit cards.

Colby Brin

Head of Copy

Colby Brin is Head of Copy at HyperJar. With over 17 years of professional writing experience, Colby’s been a journalist, ghostwriter, language consultant, and writing trainer. Having previously served as Head of Copy at Wise, he’s worked in fintech for over six years. A native of New York City, Colby graduated from the University of Michigan, and has lived in London for two years.

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