Prepaid debit cards are purchased with a balance loaded in ready to go. In this way they are very similar to prepaid credit cards, and for the card user they are the same in most respects, although there are some technical differences between the two and the way in which they are processed.

The reason why people may wish to use a prepaid debit card is that a normal debit card has direct access to a bank account. This may be a transaction account, but there are other accounts that debit cards now access such as savings accounts, home loan accounts, and investment accounts. These accounts may have much more significant balances, and so it is not wise to hand such a debit card to another person. Although fraud is unlikely with a friend or relative, there is the chance of spending getting out of hand. This can particularly be the case with a debit card, as there is little need to write transactions down, as with a chequebook, and the chance of noticing the funds running low, as with cash, is less.

However, it may be necessary to provide a person with a certain amount of financial independence and a debit card can be a good way to do this. It also avoids the slightly humiliating routine of doling out a weekly cash allowance. A prepaid debit card is a good tool for this sort of occasion, as the card can be spent in whatever way the card holder wishes and carries the full convenience of plastic.

Prepaid debit cards can be especially good for teaching children and young adults how to manage money and as preparation for the almost inevitable credit card. Carrying a prepaid debit card will teach a young person not only how to use the card but also what it is like when the money runs out. It can also be a gentle way to test the young person’s money management skills, or whether they will need further guidance.

Prepaid debit cards can also be used to order items over the internet, in the same way as credit cards and standard debit cards. However, because their funds are limited, prepaid debit cards are a better choice when one is forced to deal with a website that, while not perhaps fraudulent, may not have the best security protocols in place.

Many banks and lenders advertise prepaid debit cards as being sound financial solutions to consumers who either have no existing relationship with a bank or whose only affiliation is through basic services, such as a savings account. Creditors hype prepaid debit cards as easy, low-commitment alternatives to having to open up traditional debit card accounts. They are also touted as being easier to qualify for than credit cards, which will appeal to the segment of members of the public who have bad credit or no previous credit history.
Should Consumers Consider a Prepaid Debit Card?
All of this leads to the question: are prepaid debit cards really as sweet of a deal as lenders would have consumers believe? Below is a list of features of prepaid debit cards that will help consumers decide if they are worth it.

A prepaid debit card will assess more fees than a standard debit card

With a standard debit card, users may have to pay a small annual fee and/or a monthly service fee which usually does not exceed the $5 to $10 range. There are fees for when a user mishandles an account, of course, such as overdraws, bounced cheques and foreign transaction fees. But by and large these fees are one-off penalties which are rare, if not altogether non-existent, for responsible debit card users. A prepaid debit card, on the other hand, comes chock-a-block with fees for nearly every imaginable service. Users may be assessed purchase fees, an activation fee, exorbitant penalties for non-network ATM withdrawals, monthly service fees, service fees on every transaction and reload fees if the user decides to add more money to the account. In the end, a prepaid debit card user may pay a significant amount of fees each month simply for using their own money.

A prepaid debit card will have less consumer protection than a standard debit card

Modern credit cards come many consumer protections which shield borrowers against fraudulent purchases. If an illegal charge is made on a card user’s account, then all the user needs to do is report it to their issuer and they will not be held liable. Lenders have begun offering similar safeguards for standard debit card accounts as well, sometimes requiring $50 to $100 liability while other issuers require zero liability. These protections are not being offered on prepaid debit cards, however, because they conform to different rules and are not covered by the same legislation as a standard debit card. Because of this, if a user experiences fraud on their prepaid debit account, they could wind up being held liable for every last cent, effectively losing them the stolen amount for good.

A prepaid debit card will not receive the same priority as a standard debit card

Credit card customers receive quality customer service from their issuers. The more prestige the credit card, of course, the more attention and focus the lender places on the questions and concerns of those card holders. Debit card users receive quality service from their banks as customers who bank directly with their local branches, as opposed to credit card users who bank via a global network. Prepaid debit card users, by and large, do not receive nearly the same level of customer service as either of the aforementioned users. One reason is that many prepaid debit cards are attached to a lender that is not local and who operates under a co-brand with a merchant or well-known figure. These companies are further removed than a local bank branch and less established than a credit card network, thus providing inferior service.
Who Should Use A Prepaid Debit Card?
Prepaid phones and gift cards have become a staple of convenient, controlled lifestyles in Australia and around the world, so it was only a matter of time before debit cards came into the game.

These little plastic cards can make managing money much easier, allowing you to spend without worrying how much is coming out of the bank. But are they right for everyone?

Just like credit and regular debit cards, prepaid debit cards offer people more flexibility with how they pay for things. Some of the main reasons people consider prepaid debit cards include:

More privacy when shopping online
Less risk of losing a lot of money
More secure money management while travelling
Budget management; and
As a gift

Both Visa and MasterCard have prepaid debit card options and many banks, like ANZ and Westpac, now offer them as well. Generally they will be accepted anywhere that accepts regular debit cards, but to avoid any confusion it is best to check before trying to pay with a prepaid card.

With prepaid debit cards like those offered by Australia Post, you also have the option of reloading your cards after the initial amount has run out. However, it does cost $3.95 every time the card is reloaded, which could add up to more than the annual fees of many regular debit card options.

For personal use these prepaid cards would best suit people who are travelling or require a specific amount of money for something such as petrol or work expenses. But as an everyday option they may end up being more hassle to maintain than a regular debit card because the amount of money is not as easy to top up.

One of the best reasons to consider a prepaid debit card would be as a gift for someone. Many shopping centre promotions will actually use prepaid debit cards as rewards for customers, and they can be ideal when you are struggling to think of a gift for someone.

Some prepaid debit cards, like those offered through MasterCard, will also give you the option of personalising the card with the person’s name, a message or even a photo.

When it comes to money management, every option is worth considering. A prepaid debit card could be useless for some people, but priceless for others and finding out about them will shed light on whether it is the right choice for you.

There is a wide range of reasons people get prepaid cards, and here we take a look at the best times to use them to give you an idea of how you could put a prepaid card to use.

Gifts – prepaid debit cards can make both practical and thoughtful gifts, with both general cards and brand-specific options available so that you can give people the means to buy exactly what they want.
Travel – theft and fraud are greater risks for travellers and a prepaid card keeps foreign funds accessible and secure. Plus you have control over the balance of the card, increasing the chances of sticking to your budget.
Shopping online – anyone who is worried about security online, for whatever reason, can find more peace of mind using a prepaid card instead of an everyday debit card.
Sticking to a budget – if you find that you always overspend in stores then preloading a set amount of money on one of these cards could help reign in spontaneous spending and save even more for a rainy day.
Personal finances lessons – people who want to teach their children about personal finances could use prepaid debit cards as a tool for budgeting. It also makes it easier to track what money is spent on when it comes to pocket money.

These days banks, newsagencies, grocery stores and even Australia Post sell different kinds of prepaid cards.