Prepaid cards and debit cards both let you pay for things you need. But with a prepaid card, you have to add money before you can spend it. With a debit card, you can use the money you already have in your bank account. They suit different people depending on how they spend money. So, depending on your needs and how you spend, you can choose either a prepaid card or a debit card.
What is a Debit Card?
Debit cards are directly connected to your bank account, allowing you to access the money you have in it. When you use a debit card, the purchase amount is deducted from your bank account right away. So, it's essential to have a savings or current account with the bank to get a debit card.
You can use your debit card to make purchases online or in stores, as well as to withdraw cash. However, you can only spend the money that's available in your bank account.
On the other hand, credit cards let you shop even if you don't have the money at the moment. They enable you to borrow money from the bank and pay it back later according to your convenience.
How Does a Debit Card Work?
A debit card is linked to your savings or current bank account, so you need to have an account with the bank to get one. Banks offer you a debit card when you open a savings account. It's directly connected to your bank account, so when you buy something, the money is taken directly from your account. Your spending limit is the amount of money you have in your account.
Besides accessing your funds, you can use your debit card to make purchases both online and in-person. Plus, you can earn rewards, cashback, complimentary tickets, and other benefits when you use your debit card.
What is a Prepaid Card?
Prepaid cards offer the convenience of making both online and offline payments with just a tap. Unlike debit cards, they aren't directly linked to your bank account. To use a prepaid card, you need to load money onto it beforehand, limiting your spending to the amount you've added. This process, known as loading money onto the card, ensures you can only spend what's available.
It's important to note that some prepaid card issuers may allow spending beyond your loaded balance, but they charge fees for this service. Nonetheless, prepaid cards function similarly to debit cards, allowing you to make purchases online or in-person, withdraw cash, and more.
How Does a Prepaid Card Work?
A prepaid card is like a gift card where you have to put money on it before you can use it. It's similar to a debit card, but with a prepaid card, your balance is your spending limit. Once you spend all the money on the card, you can't use it until you add more money. It's like using cash, but you need to keep adding money to the card when you run out.
Difference Between Prepaid Card and Debit Card
If you're trying to decide between a prepaid card and a debit card, it's important to understand their differences. Here's what you need to know to figure out which one is right for you:
Cashback or Reward Benefits:
Debit cards usually offer rewards or cashback on your purchases, unlike prepaid cards. With a debit card, you can also enjoy other perks like free lounge access or memberships, which prepaid cards don't offer. So, if you're looking to save money on your purchases and enjoy extra benefits, a debit card might be the better choice compared to a prepaid card.
Spending Limit:
The spending limit is the most you can spend using your card. For prepaid cards, it's the balance you have on the card. Once you use it all up, you need to recharge the card to keep using it. With debit cards, you can spend the money in your bank account, so your spending limit is the amount in your account.
Bank Account:
With a prepaid card, you don't need a bank account, but to get a debit card, you must have a savings or current account with a bank. Your debit card is linked directly to your bank account. On the flip side, you need to add money or recharge your prepaid card before you can use it.
Fees:
Debit cards often have an annual fee that banks charge for giving you access to your funds. Additionally, many debit cards come with fees for reloading money, withdrawing cash, and for inactivity or maintenance. This is a key difference between prepaid and debit cards. So, if you're looking to save on expenses and avoid high charges, a debit card might be the better choice.
Which Card is Best for You?
Both prepaid and debit cards can be used for online and offline purchases, but the best choice depends on your needs. If you don't have a bank account or can't open one, a prepaid card might be the way to go. It's also good for strict budgeters because you only load the money you need onto the card. However, if you have a bank account, a debit card is more convenient for accessing cash. Plus, there are many fee-free debit cards available.
Prepaid Card Vs Debit Card
| Prepaid Card | Debit Card |
| There are no cashback or reward benefits | Offers cashback or reward benefits |
| You can't access funds from your bank account | You can access funds from your account |
| It's not linked to your bank account | Directly linked to your bank account |
| Only a prepaid card account is needed | It's issued against a bank account |
| Fees are charged for cash withdrawal | There's no charges for cash withdrawal |
Conclusion
Deciding between a prepaid or debit card is all about what suits you best. Most people with a bank account prefer debit cards because they don't have to carry cash. Those who can't open an account often choose prepaid cards. Parents might opt for prepaid cards to give their kids a set amount of money. But if you're looking to build your credit score, getting a credit card is a good idea because it helps improve or establish your credit history.