What is a Prepaid Card?

teal credit card digits close-up

Prepaid CardA prepaid card is a 3 3/8 x 2 1/8 inch, flat, plastic object which allows a holder to access previously deposited cash balances in order to facilitate the payment of goods and services. Each time the prepaid cardholder makes an expenditure, the card issuer reduces the account balance accordingly. The holder may use the card until the balance depletes.

The prepaid card comes in a variety of forms. “Prepaid” may refer to a stored-value card, like a gift or calling card. With such instruments, the card expires after the holder expends the attached value. More commonly, “prepaid” applies to a “reloadable” card to which the holder can repeatedly add money and use on a continual basis.

A prepaid card is similar to a credit card in that they usually carry major association logos, like MasterCard and Visa. Also, like credit cards, prepaid cards allow holders to make purchases, withdraw cash, and pay bills online. Though, unlike a credit card, the issuer offers no advanced funding. The prepaid card is dependent on its stored value. Therefore, the cardholder must rely upon his or her existing resources.

Like a debit card, prepaid payment card payments are contingent on the presence of prior monetary deposits. Also, some prepaid cards allow the holder to access cash from an automated teller machine. However, unlike the debit card, a prepaid card requires no bank account and it offers guaranteed approval.

A cardholder can easily add cash to a prepaid account at numerous locations, including grocery stores, drugstores, and service stations. One can also deposit paychecks or other receipts directly into the prepaid account. This option offers check holders a more economical alternative to the use of check cashing stores.

The prepaid card may be a convenient method to pay for goods and services. Still, prospective cardholders should be aware of the high fees associated with obtaining and using such arrangements. A prepaid card can be a costly way to use one’s own money.


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