Comparison Between Debit Cards & Prepaid Cards

Both debit and prepaid cards arer more manageable than credit cards.

Debit cards and prepaid cards are the chief alternatives to paying expenses with cash or credit. While both payment methods are directly funded by money deposited into a personal account, there are important benefits and disadvantages to using debit and prepaid cards.

Function

Debit cards are linked to a bank account, allowing consumers to access the funds to make purchases at stores, by phone, and online. A prepaid card allows the user to access a pre-deposited amount and to refill the card once the funds are used up.

Eligibility

Debit cards are only available to bank clients, who may be required to provide multiple forms of identification or maintain a set balance to qualify for an account. Approval for a prepaid card is guaranteed without regard to factors such as credit history, according to YoungMoney.com.

Management

Unlike prepaid cards, debit accounts can be overdrawn, leading to penalty fees. Prepaid cards can help restrict spending habits, but debit cards may require overdraft protection.

Cost

A debit card usually comes free with a bank account, but fees are charged when the card is used at ATMs at other banks. Beyond the initial purchase fee, prepaid cards often come with fees for each purchase, ATM withdrawals, maintenance, and inactivity, according to the New York Times.

Protection

Recovering stolen funds is difficult in either case, but a debit card may result in greater losses from a drained bank account. However, debit card policies are more regulated by the government, providing customers with legal defenses against fraudulent bank practices. Prepaid card issuers are not heavily regulated and have more freedom to establish excessive rates and fees.

References

• Young Money: Credit Cards vs. Debit Cards vs. Prepaid Cards
• NY Times: Prepaid, but Not Prepared for Debit Card Fees