The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired.

The popularity of prepaid cards is skyrocketing. An estimated 23 million adults use them regularly — at the gas pump, the grocery checkout, the ATM, and even for direct deposit or to pay bills. Consumers buy prepaid cards, then use them like debit cards, making them a handy financial tool. But they're not without hazards. Let's look at the pros and cons of prepaid cards, how to choose them wisely and what mistakes to avoid, especially when it comes to hidden and potentially costly fees.

Who Might Use a Prepaid Card?

Hank has had a run of financial bad luck lately, causing a serious ding to his credit score, and he can't qualify for a credit card. He doesn't want to carry wads of cash in his pockets, though, so he uses his paycheck to buy prepaid cards for his everyday purchases and even to pay his bills.

Pam sometimes has trouble keeping tabs on her account balance. Tired of paying hefty overdraft fees, her solution is to use prepaid cards to avoid spending more than she has. She would rather have a purchase denied than pay another penalty fee.

Retired teachers Patricia and Sam live comfortably on their retirement incomes, as long as they keep a close eye on their finances and don't overspend. To help in that effort, the couple uses prepaid cards loaded with specific amounts for weekly groceries and entertainment. It's a good idea to keep a rein on their budget.

Jack and Ella are about to send their eldest child off to college. This will be the first time daughter Annie will be on her own — and handling her own finances. Mom and Dad decide to equip Annie with a prepaid card loaded with a finite amount of cash. They see it as a way for Annie to practice using credit while keeping her spending in check, and it protects them from the risk of her unwittingly racking up a mountain of debt.

Marcie is a keen online shopper, regularly scouring people-to-people marketplaces on the internet for collectibles, books and handcrafted items. Paying by cash is out of the question, and she feels more secure and more comfortably anonymous using prepaid cards rather than her personal credit card online.

Jack is fresh out of high school, still deciding where life will take him next. While he takes some time to mull his options, Jack works at a minimum-wage job. His take-home salary is too low to counter the low-balance fees of a traditional bank checking account, so he has his paycheck directly deposited onto a prepaid card.

In the neighborhood where Lauren and Steve live, there are no bank branches. Rather than go out of their way every time they need cash, they keep prepaid cards handy for their everyday purchases.

Not long ago, your choices to pay for goods or services were cash, checks or credit cards. Today, many consumers reach for prepaid cards. In fact, prepaid cards are among the fastest-growing consumer financial products in the U.S., according to the Consumer Financial Protection Bureau (CFPB). Consumers put nearly $65 billion on "general-purpose reloadable" (GPR) prepaid cards in 2012; that was predicted to almost double to $112 billion by 2018.

Prepaid Cards 101

Prepaid cards are easy to get and can be a convenient alternative to cash, checks or credit cards. Known officially as "general-purpose reloadable" and sometimes as prepaid debit cards or prepaid credit cards, prepaid cards are loaded with cash. They can be used at ATMs for withdrawals and to purchase just about anything in person or online, similar to debit cards tied to checking accounts.

People who do not have a checking or savings accounts, or who use them very little, used to be the main users of prepaid cards. But prepaid-card usage is becoming more common, growing more than 50 percent between 2012 and 2014, driven primarily by increased adoption among those consumers who do have bank accounts.

Types of Prepaid Cards


General-Purpose Reloadable Cards

For the purposes of this guide, we're primarily talking about this type of card: You load money onto it, and then use it like you would a debit card. GPRs typically sport network brands, such as Visa, MasterCard, Discover or American Express, and can be used anywhere credit cards are accepted.


Gift Cards

These cards come in specific monetary denominations, good for purchases at specific stores (think Amazon gift card). They usually are not reloadable, and they're perfect for gifting.


Payroll Cards

Just as the name says, instead of a paycheck, some employees receive prepaid cards loaded with their salary amounts. They can then use the cards like they would debit cards to purchase goods and services and to pay bills.

While the above are the top three most commonly used prepaid cards, others include government benefit cards that pay unemployment benefits, child support and other benefits; public transit system cards; and some college ID cards.

Prepaid Cards Vs Credit and Debit Cards

At this point, you may be wondering how prepaid cards differ from debit and credit cards. They may look alike, but they all function differently.

  • creditCards icon


    With a credit card, you borrow money you must pay back, with interest if you do not pay the balance by the due date. To get one you have to have good credit, and using one responsibly will continue to improve your credit rating. This in turn can help you down the line to get better rates on car loans, mortgages, etc. On the other hand, using a credit card irresponsibly can lead to overspending, debt accumulation, late payments and, ultimately, damaged credit.

  • creditCard2 icon


    A debit card is issued by your bank and linked to your checking or savings account. The money is yours and there are no interest charges, but there can be penalty fees for overdrafts. As with your checkbook, you'll want to keep track of your balance.

  • prepaidCard icon


    With prepaid cards, you spend money that has previously been loaded onto them; they aren't connected to checking or savings accounts. They work like debit cards, but you do not need a bank account (or good credit) to get one. You can purchase the card in a certain amount, but you can add additional money to it at any time. When the balance is gone, your card stops working unless you add more money to it.

Hidden Fees to Watch Out For

All prepaid cards are different and may charge varying fees, from a charge for each time you use the card to make a purchase to a fee for using it to withdraw cash from an ATM. These fees can add up quickly, eating away at the balance of money you've loaded onto the card. It's important to read the fine print to find the best deal. Look for information on the card, inside the card package or at the card issuer's website

Some activities your card provider might charge for and a range of their associated fees include:

  • Card purchase and/or activation: $0-$30
  • Card reload: $0-$5
  • Monthly service: $0-$9.95
  • Purchase transaction: $0.49-$2
  • ATM withdrawal: $1-$3
  • Inactivity: $2-$5.95/month
  • Balance inquiry: $0.49-$2
  • Paper statement: $0-$5.95+
  • Lost card replacement: $10+
  • Card cancellation: $10+
  • Overdraft: $15+

Other possible fee-incurring activities include:

  • Bill payment
  • Additional card
  • Inactivity
  • Stop payment
  • Decline
  • Card-to-card transfer
  • Foreign transaction

Sources: CFPB and


The Pros & Cons of Using a Prepaid Card

The advantages and disadvantages of prepaid-card use varies widely by card. Following are some issues to consider when purchasing a prepaid card; not all cards have all the pros nor all the cons listed below.


  • Easy to get

    You can buy them almost anywhere.

  • Easy to use

    You can use them pretty much everywhere.

  • Safer

    If you lose cash, it's limited. If your credit card is stolen, the thief could rack up substantial charges. If you lose your debit card or checkbook, a thief could drain your account. But if you lose a prepaid card, your loss is limited to the amount on the card. Also, some prepaid cards offer protections against loss or theft.

  • No credit check

    This is a plus for those with less-than-stellar credit histories.

  • Budgeting tool

    You can load your monthly grocery budget, for example, on a prepaid card. Use it only for groceries, and when it's spent, live off what's in your pantry until the next month.

  • No bill

    Loathe sifting through paperwork or electronic statements? There's a monthly bill with prepaid cards.

  • No bank account

    No problem. With a prepaid card in your pocket, you'd to go.

  • No debt

    When using a prepaid card, you're spending a specific amount of money you've loaded onto it, so there is no chance of incurring debt with it.

  • Overdraft protection

    This protection is built in because when your card reaches a $0 balance, it stops working.


  • Hidden fees

    This is the biggest, most significant downside to prepaid cards and may outweigh all of the pros. Beware! See "Hidden Fees to Watch Out For" above.

  • No interest

    Money stored on prepaid cards does not accrue interest.

  • May not be safer than credit cards

    Prepaid cards currently have fewer purchase and fraud protections than credit or debit cards. That changes in October 2017 (see "How Prepaid Debit Cards Work"), but for now, check the terms of your card.

  • No credit-history boost

    Prepaid-card activity is not reported to the three major credit-reporting agencies, so it doesn't affect your credit score. As such, it will not help build your credit.

Expert Advice on Using a Prepaid Credit Card

  1. Why are prepaid cards so popular?
  2. What are the drawbacks of using prepaid cards?
  3. Are there alternatives for people considering prepaid cards?
  4. How can consumers avoid mistakes when using prepaid cards?
Brandan E. Wheeler, Ph.D
Brandan E. Wheeler, Ph.D

Assistant Professorat at Alabama A&M University

Jeffrey Berdahl
Jeffrey Berdahl


About Michele DiGirolamo

Michele DiGirolamo headshot

Michele DiGirolamo has worked as a journalist and non-profit communications administrator and now writes about business, health, food and lifestyle topics from Haddonfield, NJ.

*Rates, fees or bonuses may vary or include specific stipulations. The content on this page is accurate as of the posting/last updated date; however, some of the offers mentioned may have expired. We recommend visiting the card issuer’s website for the most up-to-date information available.
Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, credit card issuer, hotel, airline, or other entity. Learn more about our editorial policies and expert editorial team.
Advertiser Disclosure: MoneyGeek has partnered with and for our coverage of credit card products. MoneyGeek, CardRatings and may receive a commission from card issuers. To ensure thorough comparisons and reviews, MoneyGeek features products from both paid partners and unaffiliated card issuers that are not paid partners.