Prepaid cards, also known as prepaid debit cards, have grown in popularity over the last several years. In fact, the global market for prepaid cards is projected to reach $3.1 trillion by 2022, according to an April report by Global Industry Analysts, a business strategy and marketing intelligence source.
This projected growth is driven by the "growing need for financial inclusion of unbanked consumers, provision of innovative card features and services, increasing volumes of online transactions and rising demand for cost-effective electronic payment solutions," Global Industry Analysts said in the report.
But does all that popularity mean a prepaid card is a good choice for you? Prepaid cards, which let you load money onto a card and use it just as you would a debit card, could potentially be a good choice if:
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You want to keep a tight rein on your spending
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You want to give a gift of money
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You want to help your child learn to manage money responsibly
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You want to save for a special occasion by loading up a card with money you've saved for a trip or a shopping spree
If any of these describe your situation, here are seven things to keep in mind when considering a prepaid card.
1. There's No Deposit as Collateral
The nice thing about prepaid cards is there's no need to make a deposit that's held by the bank, as you would with a secured credit card. A prepaid card can be used just like a check, and can be more convenient.
2. There's No Interest
There are no interest charges (since it's not a line of credit), and you can't typically overspend on a prepaid card. If you've reached the limit of your funds, your purchases will be rejected unless you're using a type of prepaid card that allows overdrafts. Managed carefully, a prepaid card can help you avoid debt and finance charges.
3. There's No Credit Check
There's typically no credit check for a prepaid card since it's tied to your money and not a loan from a financial institution. No matter how bad – or non-existent — your credit is, if you have cash to load onto a prepaid card, you can probably get one and use it in place of a credit card.
4. Lose the Card, Possibly Lose the Cash
One of the negatives about prepaid cards is, if you lose the card, you could wind up losing the money you loaded onto it.
"If lost, you will be subject to the issuer's terms, which are different from credit cards and may result in financial loss unless reported immediately — and possibly other steps like pre-registering the card before use," Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said in an email. "You should check the terms and conditions of the particular card you are considering and keep all the information on the account handy in case of theft or loss."