Debit Cards vs. Prepaid Card

By | July 4, 2014

Debit cards and prepaid cards are similar except for one key difference: debit cards are linked to a bank account (typically a checking account), while prepaid cards are not.

This difference affects how the card is regulated by the government, what fees are allowed and are not, and how you add money to the card.

Types of Cards

Prepaid Debit Card

Before we get into the differences between them, we should probably point out that there is no such thing as a “prepaid debit card,” as a prepaid card and a debit card are legally distinct things.  If a website is calling it a “prepaid debit card,” they probably mean prepaid card and are using the term “debit” to get extra search engine traffic.

Prepaid Card

You can apply for prepaid cards online, or purchase the card at a participating retailer.

  1. You can preload with cash, typically via an authorized retailer, or by debiting your bank account.
  2. You typically manage your account online, although many issuers also provide other means, like over the phone or at select retailers.
  3. Most operate on the Visa, MasterCard, Discover or American Express networks.
  4. Does not extend credit.
  5. Typically does not work at an ATM.
  6. Money is not always available immediately, depending on how you add money to the card and the card’s funds availability policy.

Debit Card (Combined Signature Debit / PIN Debit / ATM Card)

These are offered when you open a bank account at a bank or credit union.

  1. Attached to a bank account, typically a checking, savings, share or money-market account.
  2. Money is directly debited out of your bank account.
  3. To add money, you deposit it into your bank account.
  4. Banks sometime offer overdraft protection and/or a line of credit, in case you use more that what is in your account.
  5. Are typically issued on one of the Signature Debit Networks: Visa, MasterCard, Discover Network.
  6. Also work on the ATM & PIN Debit Networks, such as Pulse, Star, NYCE, Cirrus, Interlink, etc.
  7. Money is typically available immediately if you deposit cash, and may take a day or two if depositing a check.

Signature Debit Card – Only

It is rare to find a debit card without a PIN Network, but they do exist.

  1. Same as the combined debit card, but only works on one of the following: Visa, MasterCard or Discover Networks.
  2. You cannot withdraw money via ATM.

PIN Debit / ATM Card – Only

Used to be common, but now are vary rare.  Most banks want you to use the combined card, since they make more money every time you use it.

  1. Same as the combined debit card, except only works at ATMs and at merchants that accept PIN debit networks, like Pulse, NYCE, Star, etc.
  2. You can only use it at an ATM to withdraw cash, or at merchants that accept PIN debit cards.

Which is Better?

Since the biggest difference is the fact that a debit card is tied to a bank account, whereas a prepaid card is not, the question becomes whether you need the additional services that a bank account provides.

Banks typically have branches you can walk into, and have call centers to take your calls.  They often offer additional services like overdraft protection, or lines of credit that can be tied to your bank account.  Fees may be lower if you do enough business with the bank.  For example, if you have multiple accounts with them or have a certain amount on deposit, they may waive fees related to your bank account.

On the other hand, prepaid cards are typically managed online, via retailers or via phone.  There typically aren’t any branches you can walk into to talk to a real person.  Credit is not extended, which means when the account is empty, all additional charges are declined.  This is a good thing in that you don’t have unexpected overdraft charges, but it also means you can’t borrow to get out of a tight spot.

Fees vary so much, that it really depends on who is offering the card.  Some bank accounts have monthly fees and are more expensive than prepaid cards, whereas some prepaid cards are so overloaded with fees, it can get really expensive fast.  Before deciding on a card, review the fees and how you expect to use the card.

In the end, one is not better than the other, bur rather if the card you are considering the best fit for you.

Scott M. Stolz

Director & CEO at WisTex Solutions LLC
Entrepreneur, Educator, Author.
Helping people embrace life's opportunities.™

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