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Prepaid card vs. debit card: What's the difference?

Prepaid cards are common tools for those without bank accounts, but they are much more expensive than debit cards.

Updated 5 min read

Cash is increasingly unpopular; consumers use cash for just 7% of total payments, according to the Federal Reserve. But if you’re trying to avoid racking up debt and prefer not to pay with a credit card, debit or prepaid cards can be convenient payment methods that allow you to skip carrying paper bills.

Both prepaid cards and debit cards give you a card to use at the cash register or to make online purchases. Despite their similarities, they have several key differences that can impact your finances. Read on to learn more about how prepaid cards vs. debit cards work, their fees, and their pros and cons.

A prepaid card is a type of payment card you can use to make purchases in person or online. It requires you to load money onto the card ahead of time, and you can spend up to that amount until you deposit additional funds.

Prepaid cards aren't linked to bank accounts, so you can have one even if you don't have access to a checking or savings account. And since you can only spend up to the amount on the card, they can be a good choice if you're trying to stick to a budget or rein in your spending.

Since prepaid cards are part of major payment networks such as Visa or Mastercard, they can typically be used anywhere credit cards are accepted. Unlike credit cards, however, prepaid cards are available to anyone, regardless of their credit or financial history.

You can purchase prepaid cards online or in person at local retailers. Major grocery stores, pharmacies, and convenience stores often have prepaid cards available, and you can purchase one and load cash onto it at the register.

Prepaid cards have some protections. For example, if your card were to be stolen, you'd have some recourse. As long as you report that your card has been compromised within two business days, your liability is limited to $50. After that, you could lose as much as $500. The card provider may issue you a new card, but you may have to pay a replacement card fee.

Read more: What are bank fees, and how do I avoid them?

Debit cards are another payment method for making purchases or paying for services. Unlike prepaid cards, which aren't linked to a bank account, debit cards are typically linked to your checking account.

Whenever you make a purchase using a debit card, the money is pulled directly from your bank account balance. Because you're spending money already in your account, debit cards make it easier to manage your money and stick to a spending plan than credit cards.

Debit cards are also issued under major payment networks, so they can be used anywhere Visa, Mastercard, American Express, or Discover cards are accepted.

Debit cards are subject to strict regulations. If your debit card is stolen, your liability is limited to $50 if you report the fraudulent transactions within two business days. Typically, banks and credit unions will allow you to cancel the existing card and get a replacement at no extra cost.

Prepaid cards and debit cards are convenient payment options, reducing the need to carry cash. Although they have some similarities, prepaid cards and debit cards are quite different from each other. Here’s a look at their key differences and typical fees:

The biggest difference between prepaid cards and debit cards is what's required to open one. With a prepaid card, you don't need to have a bank account. According to the Federal Reserve's 2023 Economic Well-Being of US Households report, 6% of adults were unbanked, so prepaid cards can be a good solution for these consumers.

By contrast, debit cards do require users to have an open checking account with a bank or credit union.

When you open a checking account to get a debit card, you may have to meet the bank's minimum deposit requirements. For example, a bank may require customers to deposit at least $25 to open an account. The bank may also charge monthly maintenance fees, such as $5 per month, to keep the account open. However, you may be able to get these fees waived by meeting certain requirements such as opting into e-statements or setting up direct deposit.

Read more: The 10 best free checking accounts available today

Prepaid cards usually have more fees than debit cards, and the fees can be substantial. Common fees on prepaid cards include:

  • Activation fee: The activation fee is what you pay up-front when you get your prepaid card; the fee is necessary to activate and register the prepaid card. Depending on the provider, the fee can range from $0 to $10.

  • Monthly fee: Some prepaid cards charge monthly service fees. Typically, these fees range from $0 to $8 per month.

  • Cash reload fee: You can add cash to a prepaid card, but some card providers charge a cash reload fee. The fee can be as high as $6 per deposit.

  • Inactivity fees: If you don't use a prepaid card for 60 days or more, the provider may charge an inactivity fee. The fee can be as high as $6 per month without activity.

Prepaid cards and debit cards may allow you to withdraw cash from an ATM. However, they may have different levels of accessibility and fees.

Prepaid cards often charge an ATM fee, regardless of which ATM you use. Debit cards often allow you to withdraw cash without a fee as long as you visit an in-network ATM.

Read more: How to avoid ATM fees

Whether a prepaid card is better than a debit card is dependent on your needs. A prepaid card can be a useful solution if you don't have an existing bank account or are trying to limit your spending. If you have a checking account, a debit card is likely a more cost-effective choice.

Prepaid cards can be expensive; they often have activation fees, monthly fees, cash reload fees, and inactivity fees, which can chip away at your balance.

A prepaid card is commonly used by those in banking deserts, meaning those who don't live close to a bank or credit union branch and don't have access to checking or savings accounts.