An Overview: Prepaid Debit and Gift Cards
I’m noticing a trend at work that I thought I’d talk a little about. More and more people are going over to the prepaid debit/gift cards as a way to avoid compromising their debit and credit cards. I’m seeing this for a lot of people who shop online and are completely freaked out by the thought of someone clearing out their accounts.
Since I’m seeing an increase in these, I figured I’d give you guys some pointers and do a little round of Frequently Asked Questions. If you’ve got a question that doesn’t appear on the list, feel free to ask in the comments and I’ll get you an answer!
1. What is a prepaid debit/gift card?
I use the two terms synonymously here because they’re essentially the same thing. But, they are a card with either a Visa or MasterCard logo that can be pre-filled with a specific amount of money. Depending on where you purchase the card, there may be minimums and maximums on the amounts imposed, but generally speaking, you can add as much as you want to the card.
My credit union sells them for $2 and the minimum you can put on the card is $10, but we don’t have a maximum amount so you can go as high as you want. Anywhere you go, you’ll find these cards have an initial price to purchase them. Most are nominal, somewhere in the $2-5 range, but it may not be worth it depending on how much you’re planning to put on the card.
2. Are these cards reloadable?
This depends on where you go. Some of them are, some aren’t. The ones we sell at our credit union are not reloadable. So, if this card is being used as a means of online shopping so you don’t have to use your debit card, then it may be best to find one that is reloadable to avoid paying the fee each time you buy a new card.
3. Where can I get a prepaid debit/gift card?
You can usually find these cards at any financial institution or authorized retailers who sell them. Authorized retailers usually include your grocery stores, Wal-Mart, Costco, Sam’s Club, etc. It’s a good idea to shop around with these cards to make sure you’re getting the best deal possible as some may have higher hidden fees then others.
4. Are there hidden fees?
Usually. Most prepaid cards have a specific time that the funds must be used by before the card is assessed a fee of some kind. This will vary from card to card, and the rules may be different on cards that are reloadable, but as a general rule, cards with balances after 7+ months are typically charged a monthly fee until either the card is used or the balance depleted.
The cards we sell at the credit union are $2.95 after 7 months. This is something we always disclose to people, so it’s a little less hidden then if we just didn’t tell them, but it’s important to note what the fee is on the card you’re picking out so you can compare it with other cards.
5. Will I need to activate the card when I receive it?
This largely depends on the card and where it was purchased. If it was purchased from a financial institution, then it should already be activated, you just may need to register it. If it was purchased from an authorized dealer, then you may have to activate it following the instructions provided with the card.
6. What does registering the card do?
Along with activating a card, it may be a good idea to register it. This will allow you to use the card online to make purchases. It’s usually just a simple matter of going online to the respective card’s website and entering your name and address information.
7. Where can I use the card?
Anywhere Visa or MasterCard is accepted. However, I offer a word of caution here. If you have a car loan with a financial institution and you would like to use your prepaid card, be aware that most institutions run this through as a cash advance and you may be charged a fee for this. It is best to check the card’s particular policies before trying to do a cash advance. But, the general rule to this is that the cards are accepted anywhere Visa and MasterCard are.
8. What if my available balance doesn’t cover the purchase balance?
In most cases, this isn’t a problem at all. Just let the cashier know how much you want to pay with the prepaid card and then the rest you can use whatever method you want. Please note, if you try to use more then the balance on the card, it will deny you the purchase. But, also be aware that some merchants cannot split the tender like that, so you may have to use another form of payment altogether.
9. What if I need to return a purchase?
Shouldn’t be a problem, just make sure you hang on to the card. Anytime a merchant does a return for something that was purchased with a card, they want to put it back on the card. It is important to hang on to your prepaid cards until you are certain of your purchase (at least 30 days for the normal return policy) so that you do not have trouble returning an item. Many merchants may work with you if you let them know the card was a prepaid card and that you no longer have it, but just as many may not. Better to be safe then sorry.
10. What if I lose my prepaid card?
When you get the card, there should be instructions with it telling you what to do in the event that the card is lost or stolen. This information will vary by card, so it is important to keep that separate from the card so that you can easily retrieve it if you need to. Simply follow the instructions and you should be able to get a new card issued to you.
Those are some of the basic questions that are usually asked regarding the prepaid cards, at least, those are the ones I am normally asked. In addition to the above mentioned information, there are a couple more things it’s important to keep in mind and a couple of things it’s important to remember about these cards.
Tips to Remember
- Prepaid cards do require activation, so when you get the card (whether you buy it for yourself or receive it as a gift) verify that it has been activated. If not, it will be denied. You can check activation via the card’s online services or by contacting the 800 number listed on the back.
- Keep track of your current balances as not all merchants have the capability of doing so for you. I personally recommend a register if you are using a reloadable card, but you can also use the secure online system to keep track of your balances, as well.
- It’s a good idea to note your prepaid card account number and the 800 number on the back and keep it in a safe place just in case the card is lost or stolen. Most of the time, the customer service representative requires the card number and some personal information to determine who you are and get the process started.
- Remember to keep your cards at least 30 days after you’ve used them just in case you need to make any returns. Not all merchants will allow you to make a return without the card used during the purchase.
- It is not recommended that you set your reloadable cards up to be auto-filled from your bank account or credit cards as it sort of defeats the purpose of using them in the first place should the prepaid card be compromised. I had a client who had this set up and she lost the card, but whoever found it was using it and when it reached a certain level, it simply drafted more funds from her checking account, effectively wiping her out. Because she’d authorized the auto-fill she had a hard time getting the fees her bank charged in overdraft returned to her. The money was returned because most of these cards have zero liability, but she spent two months arguing with the bank and Visa to have the fees returned to her. Just a warning that you should set those kinds of transactions up with caution.
Ok, so we know these cards are great for shopping online and traveling. Is there a time that it’s bad to use them? In my opinion, not really, so long as you’ve done your due diligence in choosing the right card. If you picked the most expensive card with a bunch of hidden fees, then yeah, that might be bad. But, the biggest downside to these cards is the lack of rewards. With so many credit cards – and even debit cards – on a reward system, using prepaid cards for everything does mean you forfeit the rewards.
Have you ever used a prepaid card? What was your experience and would you use them again? Did I miss any frequently asked questions regarding the card?
Photo by barsen
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They are also a good gift for grads – especially if you are sending it out of state and you don’t know what stores they shop. The “to be” college students can use them for books or other supplies. The one downside that I found when I received one myself as a gift is keeping track of that balance… especially as you get towards the end. When you have $2.81 left,it can be kind of awkward to hand to a clerk and say, “Can you put $2.81 on my card and I’ll pay the rest in cash?” Most are really understanding, but you might want to pick someone who seems helpful and a time when the lines aren’t packed.
Also, if you are running into that fee (again, this has happened to me) it can be really hard to know your balance. “How much did they take out and when? It was $14.85 yesterday… how much is on it today?” That kind of thing. You can get around it, there are 800 numbers on the card, but personally I vowed that the next one I got one, I would not use it for a bunch of small purchases, but instead I would use in one big transaction fairly soon after getting it, just to alleviate that hassle.