How to Use a Prepaid Debit Card to Your Best Advantage

Prepaid debit cards are becoming increasingly common, thanks to a push to cater to the unbanked.

In recent years, banks have raised fees on checking accounts, and many consumers are fed up with it.  You might not even be safe from fees at a credit union.

My credit union added a monthly fee to its checking account products a couple of years ago.

It’s possible to avoid these fees if you can maintain a minimum balance, or deposit a certain amount of money in your account each month, but some consumers can’t realistically meet those requirements.

On top of that, the fact that some banks will deny you a checking account due to a ChexSystems report or even a credit score, makes it difficult to open a “regular” bank account.

For the unbanked, and even for other purposes, it can make sense to use prepaid debit cards.

Here are the Best Ways to Use Prepaid Debit Cards

Checking Account Replacement

One of the best reasons to use a prepaid debit card is as a checking account replacement.

If you are unable to get a free checking account, a prepaid debit card can serve the same purpose.  With most prepaid debit cards, it’s possible to have your paycheck directly deposited onto the card.  You can also set up online bill pay with a prepaid debit card.  Plus, prepaid debit cards are accepted where credit cards are, so it makes shopping convenient, whether you do it online or offline.

The best prepaid debit cards also come with a savings account option.  This allows you to build an emergency fund as well as act as a checking account.  Unfortunately, many prepaid debit cards with savings options don’t pay interest.  There are a few cards (like Mango) that pay interest, but most don’t.

Allowance for Your Kids

ATMMany parents like the idea of using a prepaid debit card as part of the allowance for their kids.

Once again, the ease and convenience associated with prepaid debit cards is a big factor.  Not only is it easier to pay with a prepaid debit card, but it’s also easy for parents to add funds, as well as monitor children’s spending.

On top of that, a prepaid debit card can help teens learn how to properly manage their money when they are paying with plastic.  Since plastic is becoming the most popular way to pay for purchases, it makes sense that teens should learn how to responsibly manage their money this way.

Choosing a Prepaid Debit Card

To get the best benefit from a prepaid debit card, it’s important that you carefully consider your options, and what you hope to accomplish with the prepaid debit card.

First, it’s vital that you realize that a prepaid debit card is not a credit card.  Using it won’t help you improve your credit.  Don’t get a prepaid debit card if that’s your primary reason for getting one.

Look at the fees involved with your prepaid debit card.  It’s common to see a monthly fee of $3.95, $4.95, or $5.95.  While this is still lower than the $9 monthly fee that many banks charge for second-chance checking, it’s still not great.  With the growing interest in prepaid debit, and with the increased scrutiny aimed at them, though, prepaid debit cards are adjusting.  It’s possible to find cards that don’t charge a monthly fee, or that waive the fee when you meet certain requirements (usually less onerous than what banks ask for).

Don’t forget to look at the entire fee schedule.  The best prepaid debit cards have relatively few fees, and they are generally low and reasonable.  Try to find a card that doesn’t charge a lot of fees, and that has some flexibility in terms of ATM network so that you can avoid some of those fees as well.

If you are using a prepaid debit card as allowance, choose a card that won’t charge you for reloading the card.  Pick a card that makes it easy for you to load funds from your own account without a fee.

Bottom Line

Prepaid debit cards aren’t as terrible as they used to be.  There are some decent cards out there without monthly fees, or at least with ways to waive the fees.

Look for a card that will help you accomplish your money management goals, and that won’t cost you too much in fees.

Have you ever used a prepaid debit card? How did you use it?

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Published or updated June 19, 2013.


  1. While I agree they aren’t as bad as people make them out to be I would still rather just use my own debit card. They both are going to require discipline and I don’t want to pay any fees if possible. I like the idea of using it for the allowance to give to kids. Also helps you track what the heck they are spending their money on.

    • Glen Craig says:

      Thing is there are a lot of people out there that are ‘unbanked’ and don’t have checking accounts. Prepaid debit cards can fill that need. There are also cases where bank accounts charge higher fees than a prepaid card might have.

  2. Well, this is a great information on how to use debit card. But users should be responsible in using it. As the forex scene is unstable, obtaining help from debit card should never be the first option.

  3. This is interesting information. I’m glad to hear that the quality of the product is improving, but I still don’t think I would ever use a prepaid debit card. I don’t mind the minimum balance that some banks require because I like to have cash on hand just in case.

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