What Are Prepaid Credit Cards?

The first thing to know about prepaid credit cards is that they are not, in fact, credit cards at all. They are called such mainly because pre-paid cards carry the name of major credit-issuing banks such as Visa, Mastercard and American Express. They are also credit cards in the sense that when stores accept them, they must wait a short period for reimbursement from the card issuer (unlike when the stores receive cash or a direct debit card.) Other than that, prepaid credit cards are purchased by the consumer and hold no value other than the purchase price.

Prepaid credit cards are becoming immensely popular for a variety of reasons. They make excellent gifts for those who are hard to shop for, or people who aren't always careful with cash. Also, as the economy continues to flounder, folks on strict budgets find it easier to manage their expenses using prepaid cards. And as more and more people become frustrated with mainstream banking institutions either because of heavy overdraft charges or burdensome monthly fees, they find using prepaid credit cards a convenient and straightforward way to shop or pay their bills online.

While prepaid credit cards are a convenient way to avoid hidden or unpredictable banking costs, they do not come without their own fees. It is very important to research individual cards, especially if you plan to use them as your main source of purchasing and/or bill-paying. There is almost always a small activation fee (hovering around $5.00) and a monthly fee for cards that will be in continual use. There are some prepaid cards that do not charge a monthly fee, but like many banks, they usually require a minimum monthly deposit amount. There are several very helpful, objective websites that outline and compare prepaid credit cards, but it is important to always go directly to the website of the prepaid card you are considering to ensure accuracy.

With the increase in demand for prepaid cards and the decrease in demand for traditional bank accounts, choosing prepaid cards is not always the surefire way to save on fees and costs. Banks are ramping up their efforts to bring customers back by offering free checking and overdraft protection, and prepaid companies are doing what they can to maximize their bottom line. But, for those who simply wish to avoid any surprises - or for those who are unable to open a traditional bank account because of past mistakes, prepaid cards may be the only viable option.


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