A prepaid card is a type of card that you load with money in advance. You can then use it to make purchases or withdraw cash, up to the amount you’ve put on the card. It’s similar to using a debit card, but it’s not linked to a bank account.
A prepaid card, also known as a prepay card and pay-as-you-go card, means that you can only spend money that has been loaded on it in advance, as opposed to borrowing money from a bank that you have to pay back later, such as an overdraft or a credit card.
When we speak about prepaid cards at Suits Me®, we talk about prepaid debit cards which are basically debit cards that come with a current account and banking facilities. However, there are other types of prepaid cards on offer.
This article delves into the intricacies of prepaid cards, explaining their functions, advantages, and drawbacks, and why this knowledge is essential for anyone looking to manage their finances effectively.
How Do Prepaid Cards Work?
Prepaid cards work by letting you load money onto them, which you can then spend. Here’s how it works:
- Loading Money: You add a certain amount of money to the card. This can be done through bank transfers, at designated retail locations, or through online banking.
- Using the Card: Once the card is loaded, you can use it to pay for things in shops, online, or withdraw cash, just like you would with a debit card. The difference is, you’re using the money you’ve already loaded onto the card.
This makes prepaid cards a good option for budgeting, controlling spending, or as an alternative for those who can’t get a regular bank account.
Pros And Cons Of Prepaid Cards
|Budget Control: Limits spending to the amount loaded, helping to manage finances for day-to-day activities or whilst abroad
|Reload Inconvenience: When the balance is empty, the card will need to be reloaded before it can be used again.
|No Credit Check: Easy to obtain without a credit check, making them accessible to more people.
|No Overdraft: Cannot borrow money or go over the loaded amount.
|Safe for Online Purchases: Reduces the risk of fraud and overspending online.
|Fees: Can have charges for loading, transactions, and monthly maintenance.
|Widely Accepted: Can be used wherever debit cards are accepted, including internationally.
|No Bank Account Required: Useful for those without a traditional bank account.
How To Compare Prepaid Cards
When comparing prepaid cards, it’s important to consider factors like fees, reload options, and how widely they are accepted by retailers. Each card comes with its own set of terms and conditions, and understanding these is key to finding the best fit for your financial needs.
To help you get the right prepaid card for your needs, Suits Me has created the table below which contains features of prepaid cards and what you should consider before applying for one.
|Evaluate types and amounts of fees
|Transaction, monthly, reloading fees
|Varies by issuer; some offer no monthly fees
|Ease of adding funds
|In-store, online, direct deposit
|Some allow reloads at network ATMs
|Where the card can be used
|Visa, Mastercard, American Express
|International vs. domestic use
|Protecting your funds and information
|Fraud protection, PIN security
|Some offer temporary card lock features
|Additional features beyond basic usage
|Cashback, rewards, discounts
|Some offer rewards for certain purchases
|Any restrictions on card usage
|Daily spending limits, ATM withdrawals
|Varies widely among different cards
|Assistance for issues and inquiries
|Online, phone support, app functionality
|24/7 support, mobile app account management
6 Different Types Of Prepaid Cards
1. General-Purpose Reloadable Prepaid Cards
These are the types of prepay cards that can be used just like a debit card and come with banking facilities, like online banking.
These cards are also known as “opened-loop prepaid cards” which come with a payment provider logo, like MasterCard and Visa and can be used at all stores who accept these two providers.
These types of cards are popular with the everyday consumer and people who can’t access other forms of electronic payments, like a debit card or credit card with a high street bank. These types of prepaid cards are perfect for people who have a poor credit score or can’t provide proof of address.
2. Prepaid Gift Cards
Prepaid gift cards also need money loaded onto the card before they’re able to be used. However, they are slightly different from general-purpose cards as they cannot be reloaded when the balance has been spent. Additionally, the expiry dates on gift cards are often a lot shorter (usually a year) compared to prepaid cards which come with banking facilities.
They can be purchased in different formats, but the most familiar type is known as a “closed loop card”, which means you can only use it in specific stores, or in some cases, affiliate retailers or partners.
3. Retail Prepaid Cards
Not to be confused with a gift card, retailer cards work when retailers like department stores, petrol suppliers, supermarkets, or airlines, work in partnership with a banking provider or card network. Cardholders can then get merchandise discounts, rewards points, or additional services when they buy from the retailer.
4. Prepaid Travel Cards
Travel prepaid cards are best if you’re heading abroad. They can be used in shops abroad, just like a debit card and you can also use these cards to withdraw cash from ATMs.
You can load money onto this card before you go abroad which will lock in the exchange rate. You will then know exactly how much you spend, regardless if the exchange rate changes before you go. However, providers tend to set their own rates, so it’s best to shop around to find the best deal before you make a purchase.
These cards make travelling abroad a lot safer. You don’t need to worry about carrying around high quantities of cash.
5. Prepaid Cashback Cards
These can fall under the category of general-purpose prepaid cards, with the added bonus of cashback. This means that when you use this type of prepaid card with specific retailers, you will get a percentage of the money spent back into your current account.
For example, with a Suits Me® prepaid card, you can receive cashback ranging from 2% to 15% from a wide range of retailers through our cashback reward programme. Retailers include supermarkets, restaurants and clothing stores.
6. Payroll Cards
Payroll cards are given to employees by their employer. They’re an alternative to traditional paper cheques and direct deposit of wages into a bank account. They are tailored towards workers who may not have access to a bank account within the UK and can be a good starting point for workers to build their financial health.
How Can I Get A Prepaid Card?
You can open a Suits Me account today and have your card posted to you as soon as you’ve completed your application.
To apply for a Suits Me prepaid debit card takes minutes and allows you to start managing your finances immediately. Banking-like features such as direct debits, standing orders and transfers can be managed within your online account facility or our mobile app.
A Suits Me® prepaid debit card is a happy midway point between a prepaid card and a banking account. It is perfect for people looking for a solution to manage their money and is available to everyone. Our accounts are especially suited towards:
- Migrant Workers
- People with a poor credit history
- Individuals who have experienced bankruptcy
- International Students
- UK Tourists
You can open your Suits Me® account in minutes and start managing your finances immediately. All the features you need such as direct debits, standing orders and transfers can be managed within your online account facility or our mobile app.
- 7 Facts About Prepaid Debit Cards
- What are the Main Advantages of Prepaid Cards?
- Why a Prepaid Debit Card is a Great Option for People on a Budget
What is a Prepaid Card and How Does it Work?
A prepaid card, loaded with a set amount of money, offers a convenient way to pay without a bank account. Unlike credit or debit cards, you only spend what you load onto the card. Prepaid cards work by allowing you to reload funds and are often issued by major networks like Mastercard and Visa.
Debit Cards: What You Need to Know
A debit card is linked directly to your bank account and allows you to spend your own money. It’s a convenient alternative to carrying cash and can be used for transactions and ATM withdrawals. Understanding how a debit card can be used, its transaction process, and its link to your bank account is essential.
Credit Cards Explained: Pros and Cons
Credit cards offer the ability to borrow money up to a certain limit. They require a credit check and can impact your credit score. Understanding how to use a credit card responsibly is crucial, as it involves managing interest rates, credit limits, and potential debt.
Gift Cards: A Simple Guide
Gift cards are preloaded with a specific amount of money and can be used as a substitute for cash. They’re a popular way to give presents and can range from store-specific cards to ones usable anywhere like a regular credit or debit card.
Gift cards differ significantly from prepaid, debit, and credit cards. They are typically limited to purchases at specific retailers or services and do not have reloadable features. While they don’t affect your credit history or require a bank account, their use can be more restricted compared to the other card types.
Gift Card: The Perfect Present and Payment Option
Gift cards serve dual purposes. They are a thoughtful way to give, and they also provide a specific and controlled way to pay. They can be store-specific or generic prepaid cards usable anywhere. Unlike prepaid or debit cards, gift cards are usually not reloadable and have a set expiration date. They are an excellent option for those who prefer a simple, straightforward way to gift or spend.
Prepaid vs. Debit vs. Credit Cards: Key Differences
|Impact on Credit Score
|Fees and Charges
|Loaded with funds in advance
|Budgeting and control
|No bank account needed
|No direct impact
|Reloading fees, Monthly fees
|Linked to bank account
|Bank account needed
|No direct impact
|Overdraft fees, ATM fees
|Offers a credit line
|Large purchases, credit building
|Credit check required
|Annual fees, Interest charges, Late payment fees
Understanding the difference between a prepaid card and traditional banking cards like debit and credit cards is crucial. Prepaid cards, unlike debit or credit cards, do not require a bank account or credit check. They offer a controlled spending mechanism but often come with higher fees and less protection. In contrast, regular debit and credit cards offer more robust financial services but require more stringent financial prerequisites.
The Role of Mastercard and Visa in Card Transactions
Mastercard and Visa are major card networks that process transactions. They play a crucial role in the functioning of prepaid, debit, and credit cards, ensuring secure and efficient payment processing.
Understanding Credit History Through Card Usage
Card usage, particularly credit cards, can significantly impact your credit history. Learn how responsible use of these cards can improve your credit score and financial health.
The Economics of Card Fees: Transaction, Monthly, and Reloading Fees
Cards come with various fees, including transaction fees, monthly maintenance fees, and reloading fees for prepaid cards. Understanding these fees is essential for managing your finances and choosing the right card.
Secured Credit Cards: A Stepping Stone to Credit Building
Secured credit cards require a deposit and are designed for those looking to build or repair credit. They function like regular credit cards but with less risk for the issuer.
Maximising Benefits: Comparing Different Card Types
Comparing the pros and cons of different card types helps in making an informed decision. From reloadable prepaid cards to regular debit and secured credit cards, each has its own benefits suited to different financial needs.
What Are Prepaid Cards Advantages for Financial Management?
Prepaid cards have grown in popularity over the years, particularly for the approximate 1.3 million underbanked adults in the United Kingdom. These cards offer a convenient, FCA-approved alternative to conventional banking accounts.
One of the primary benefits of prepaid cards is their ability to instill a disciplined approach to budgeting. Without the possibility of an overdraft, users can avoid the perils of excessive spending. This feature is not only beneficial for regular users but is also great for recent arrivals in the UK or pwoplw aiming to establish or improve their credit history. Being independent of credit checks for approval, these cards ensure that financial inclusivity is within reach.
- Prepaid cards allow you to spend what you load onto the card.
- Debit cards are linked to your bank account and spend your own money.
- Credit cards offer borrowed funds and can affect your credit score.
- Gift cards are preloaded and can be used like cash.
- Understand the differences in card types for better financial management.
- Mastercard and Visa are crucial in card transaction processing.
- Card usage can significantly impact your credit history.
- Be aware of various fees associated with different cards.
- Secured credit cards are a safe way to build credit.
- Compare card types to find the best fit for your financial situation.
Frequently Asked Questions
Prepaid Card FAQ
What is a Prepaid Card?
A prepaid card is a type of debit card or credit card that allows you to load money onto the card. It works similarly to a gift card where you can only spend the funds available on the card.
How do Prepaid Cards Work?
Prepaid cards work by letting you add funds onto the card, either through a direct deposit from a bank account or by loading it with money. You can use a prepaid card to make purchases anywhere that accepts Mastercard or Visa.
Can a Prepaid Card be Reloaded?
Yes, prepaid cards can be reloaded with additional funds. This allows you to use the card multiple times by adding money to it as needed.
What are the Types of Prepaid Cards?
There are different types of prepaid cards, including prepaid travel cards, secured credit cards, and reloadable prepaid cards. Each type of card has its own features and benefits.
General Purpose Reloadable Cards
These offer flexible spending with the perk of online banking. General purpose reloadable cards stand out for their flexibility in daily transactions. They allow you to top-up and spend as you go, without fear of overspending.
Retail and Gift Cards
Retail cards are esteemed among shoppers loyal to particular brands, offering reward points or discounts. Meanwhile, reloadable gift cards are perfect for gifting, though typically are not rechargeable after their balance runs out. This sets them apart from other pre paid gift cards.
Travel and Cashback Cards
A journey abroad can be made more convenient with prepaid travel cards. They provide security and savings through no foreign transaction fees and fixed exchange rates. Cashback cards are equally compelling, returning a slice of your spending, thereby nourishing a cycle of rewards for your purchases.
Specialised Payroll Cards
For organisations and their staff, payroll cards act as a streamlined payroll alternative. This is especially helpful for those without access to conventional bank accounts. Contributing to the types of card are these specialised tools, easing the wage distribution process for employers and employees alike.
How to Get a Prepaid Card?
To get a prepaid card, you can typically obtain one from a card issuer or a bank or credit union. Some prepaid cards are available for purchase at retail locations, while others may require an application process.
Do Prepaid Cards Require a Credit Check?
No, prepaid cards do not require a credit check as they are not linked to a line of credit. They are an alternative way to manage your money without needing a good credit score.
Are There Transaction Fees for Prepaid Cards?
Yes, there may be transaction fees associated with using a prepaid card, such as ATM withdrawal fees or reload fees. It’s important to review the fee schedule of the specific card
Learn More About Suits Me® Prepaid Card
A Suits Me® prepaid debit card is a happy midway point between a prepaid card and a banking account. It is perfect for people looking for a suitable banking solution that is available to everyone, but our accounts are especially suited towards:
- Migrant Workers
- People with a poor credit history
- Individuals who have experienced bankruptcy
- International Students
- UK Tourists