Young woman using pre paid credit card online for flex spending account.

Prepaid Credit Card Basics And The Best Prepaid Cards On The Market

Dan Miller5-Minute Read
August 19, 2021

Prepaid credit cards look a lot like a traditional credit card, but the difference is that they’re not tied to a credit network. Instead, you load money directly onto the card and use it wherever it is accepted (usually the Visa or Mastercard network). Prepaid credit cards can be a useful alternative for people without good credit or who are underbanked.

What Is A Prepaid Credit Card?

A prepaid credit card is not linked to a bank; instead, there is a limited amount of money associated with the card. When the holder uses up the card's balance, the card becomes unusable until the user pays money toward that balance.

Prepaid credit cards are also known as pay-as-you-go or stored-value cards. While credit cards, debit cards and prepaid cards share some similarities, they also differ in a few key areas. Credit cards have a specific credit limit – you can spend up to that limit on your promise to pay it back each month. Debit cards are tied directly to your bank account and your purchases are subtracted from your bank balance as you make them.

A prepaid credit card does not tie into a bank account, and you must deposit or load money onto your card before you use it. Whereas with a traditional credit card you buy first and pay later, with a prepaid card you must pay (load) first before you can use your card for purchases.

How Do Prepaid Credit Cards Work?

With a credit card, the issuer reviews your application and decides how much of a credit limit they are comfortable issuing. You can then spend up to your credit limit, and any purchases over your limit will be declined. Each month, you’re required to make at least a minimum payment, and are charged interest on any balance that you don't pay off in full.

A debit card is tied directly to your bank account. You are authorized to make purchases as long as there is money in your account. You can also withdraw cash from an ATM or get cash back when you make a purchase at many retailers. The value of any purchases that you make will be automatically subtracted from your available bank balance. This usually happens in a matter of hours, if not sooner.

A prepaid credit card is not linked to a bank account like a debit card or linked to a line of credit like a credit card. Instead, you must deposit or load money to your prepaid credit card account. This can be done online or through a mobile app by transferring from a different account or with cash at an authorized retailer. You can only spend up to as much money as is loaded onto the prepaid debit card.

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Types Of Prepaid Credit Cards

Here are a few of the most common types of prepaid credit cards:

  • General purpose prepaid credit cards: Sometimes called "open loop" cards, these can be used indefinitely as long as you continue to add money to them
  • Prepaid gift cards: These cards, which are sold in many retailers, usually range in value from $25 – $500 and are typically one-time use
  • Health savings account prepaid cards: If you participate in an HSA through your employer, you may get an HSA prepaid card where you and your employer can load funds to be used for medical expenses
  • Payroll prepaid card: Some employers allow the option to have your pay sent via direct deposit to a prepaid card.
  • Prepaid transit card: These prepaid cards can be reloaded, but are usually only used for transit like bus or subway fares

Best Prepaid Credit Cards In 2021

Here are a few of the best prepaid credit cards to use and what each one offers.

Bluebird® American Express® Prepaid Debit Account

American Express's Bluebird prepaid credit card comes with no activation fee and no monthly fees. You can reload your Bluebird card for free online via direct deposit or at Walmart stores, but you'll be charged if you load it at other retailers.

Mango Prepaid Mastercard®

The Mango Prepaid Mastercard has no activation fee and does not require a credit check, but does come with a $5 monthly fee. You can access a network of ATMs with the Mango card (for a fee) and use your card anywhere in the Mastercard network. Mango also has a related savings account where you can get up to a 6.00% annual percentage yield.

Netspend Visa® Prepaid Card

The Netspend Visa Prepaid Card has no credit check, no minimum balance and no activation fee. You can add money to your card via direct deposit, load a check through their mobile app or reload at thousands of retailers. Once your account is loaded, you can use your card anywhere Visa is accepted.

The Pros And Cons Of A Prepaid Credit Card

Prepaid credit cards can be useful for many people, but they also come with pros and cons when compared with other options.

Pros

  • No approval or credit check required
  • Safer than cash
  • Easy to use
  • More secure than credit or debit cards

Cons

  • Not accepted at many locations and some cannot be used outside the country where they were activated.
  • Lost or stolen cards are hard to redeem
  • Card limitations
  • Activation fees
  • Monthly fees, depending on the card

Alternative Options To Prepaid Credit Cards

If you're looking for alternatives to prepaid credit cards, here are some options that you might want to consider:

Secured Credit Cards

A secured credit card shares some similarities with prepaid credit cards. In both cases, you need to deposit money to your account before you can use the card. A secured credit card, however, is issued by a lender and generally will report your payment history to the major credit bureaus. This makes a secured credit card a useful way to build credit.

Money Orders

Instead of using a prepaid credit card, you can also pay for things with money orders. Money orders can be issued at many retailers or the post office and work like checks. Purchasing a money order usually comes with a small fee of 50 cents to $1.

The Bottom Line: Prepaid Credit Cards Allow Cashless Spending Without Overspending

Prepaid credit cards can help make cashless purchases without needing approval from the bank, and can prevent overspending. If your credit is poor or if you are building your credit, you can also learn more about how to get a credit card with no credit.

Check Your Credit Score

Create a Rocket Account to check your credit score.

Dan Miller

Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free/cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids.