Many people don’t realize that pre-paid cards and credit cards are not the same thing, although a pre-paid card may have a card network logo (like Visa, MasterCard, Discover, etc.) on it, this card is different from a credit card. When you use a prepaid debit card to make a purchase you are spending money that has already been paid to put on the card. Credit cards and per-paid cards have different advantages and disadvantages for the consumer and it’s important to understand them for more information on credit cards see my previous post .
Typically there are two types of pre-paid cards. “Open-loop” cards are prepaid cards which have a network logo on them (Visa, MasterCard, American Express, or Discover) and can be used at any location that accepts that network. “Closed-loop” cards don’t have a network logo and typically can only be used at one store or group of stores, like a Starbucks gift card. Pre-paid cards that you can only use for a specific purpose, such as a transit card, is also a closed-loop card.
Prepaid cards can be reloadable, meaning you can add more money to them, or non-reloadable, meaning you can’t add money to them. A consumer will put a set amount of money on the card say $50. That card then can be used to purchase up to $50 worth of goods or services from business who accept that pre-paid card. The pre-paid card would then be unable to purchase more goods or services until more money is put back onto the card. However, many pre-paid cards will have additional fees or restrictions associated with its use and it’s important for consumers to understand how these fees and restrictions work.
The most common fees associated with pre-paid cards are monthly maintenance fees and transaction fees. A monthly maintenance fee is exactly what it sounds like a fee charged each month to maintain the card and account. With transaction fees, a fee is deducted from the balance on the card each time you use your card or for using the card more than a certain amount each month. If a consumer uses their card frequently, these transaction fees can add up very quickly. You may pay more for a card with transaction fees than with a card with a monthly fee, so you consumers should think about how they will use their card before deciding what type of card to get. In addition, some prepaid cards will waive the monthly fee if the consumer makes at least a certain number of purchases, loads a minimum amount of money each month, or links the pre-paid account to a direct deposit.