Imagine if you could control your spending simply by choosing the right card from your wallet. Both debit cards and prepaid cards offer paths to manage your finances, but they do so in distinct ways. In this blog, we will get into the differences between these two financial tools, providing clarity on which might best suit your budgeting style and financial needs.
What is a debit card?
A debit card is used to make payments from your linked bank account. When you swipe a debit card for a purchase, the money is debited directly from your savings account. These cards help withdraw cash, transact at merchant outlets, and more. Plus, there are also rewards like cashbacks and discounts on various transactions. Debit cards are like cash, you cannot use or spend more than the amount in your account unless you have overdraft protection.
What is a prepaid card?
This card is not linked to a bank account. You need to add a specific amount of money, which you can use until the balance is exhausted. Gift cards and travel cards are some examples of prepaid cards. They are often used for specific purposes. A prepaid card is a great tool for beginners, such as students learning how to manage money. Just like regular debit cards, they also have charges, such as a card opening fee, monthly usage fee, etc.
Key differences between debit cards and prepaid cards
To help you choose what’s right for you, here is a clear distinction between their features:
| Debit card | Prepaid card | |
| Is bank account required? | Yes | No |
| Source of funds | The amount in your bank account. | The amount loaded in your card. |
| Purpose | Useful for everyday expenses. | Useful for specific activities like shopping, travelling. |
| Overdraft risk | There is overdraft risk if you spend more than your account balance. Also, charges may apply. | There is limited overdraft risk as you can only spend funds present in the card’s balance. |
| Annual fees | There are only maintenance charges. | There are many fees, which are usually high, associated with using a prepaid card. |
| Other common fees | There are fees applicable on: Out-of-network ATM withdrawals Foreign transactions Overdraft or insufficient funds | There are fees applicable on: Account opening Transactions Monthly maintenance Reloading Inactivity Balance inquiry |
Who should use a debit card?
A debit card is helpful for people who want to avoid the temptation of traditional credit cards[RD(BK1] . If you have a savings account, you will surely have debit card. If you need cash at hand, you can use your debit card to withdraw money from an ATM. This saves you from paying ATM fees for prepaid cards or cash advance fees on your credit card.
Who should use a prepaid card?
Prepaid cards are an excellent solution for those without access to a bank account. They can also be useful for people on a tight budget or learning to manage money wisely.
Factors to consider when choosing between debit and prepaid cards:
- Service provider: Whether you want to apply for a debit card online or get a prepaid card, choose a reputable provider that offers reliable services and incredible perks and offers.
- International transactions: You should check whether both cards allow international payments. If yes, check the exchange rates, too.
- Extra fees: Always get clarity on additional charges regarding top up, transaction or account closure. This awareness will avoid any surprises later.
- Card network: There are various card networks, each with different terms, acceptance, and experience. So, you should check which network your card was issued on.
Endnote
Ultimately, the choice between debit and prepaid cards will be based on your preferences. In fact, having more than one card might be a wise decision because it ensures that you always have a backup plan in case your primary card cannot be used. Use this guide to decide between a debit card and a prepaid card to enjoy the unique benefits the two offer.
Ref –
https://www.cnbc.com/select/prepaid-card-vs-debit-card
https://www.aubank.in/blogs/debit-card-different-prepaid-card
https://wise.com/us/blog/prepaid-vs-debit-card
https://www.bankrate.com/credit-cards/building-credit/prepaid-vs-debit-cards