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What You Need To Know About Credit Cards And Debit Cards

by / 0 Comments / Apr 09, 2015

Credit cards, debit cards and prepaid cards look alike, but they are very different. The debit card, a card that looks like a credit card but that links to your checking account, has been around since the 1970s. It started to become popular when ATMs appeared throughout the country in the 1980s and 1990s. People like having a debit card because it allows them to withdraw cash from their bank accounts easily, and they can pay for items just by swiping their debit card at the register. A prepaid debit card might look like a debit card, but it is not the same because it does not link to a bank account. People have to put money onto the card to use it. Prepaid debit cards have been gaining in popularity in recent years.

Credit Cards, Debit Cards and Prepaid Debit Cards Are Not the Same

With both debit cards and prepaid debit cards, you need to have money to buy items. This is unlike a credit card where you are essentially taking out a loan by buying items and paying for them later.

Overdraft Protection

Because your debit card links to your bank account, you can opt for overdraft protection. That way, if you spend more money than what you have in your bank account, your bank can cover the overage. You would need to pay back the overage, and the bank charges a fee for this service. A prepaid debit card does not come with an overdraft protection option. You can use only the money that you have loaded onto the card and no more.

How a Prepaid Debit Card Works

When you open a prepaid debit card, you decide how much money to put on it. When you buy something with the prepaid card, the money you loaded onto it is subtracted from the balance. You can keep reloading the card as often as you like.


    • Prepaid debit cards are ideal for people who do not have a checking account but who like to shop online, pay bills online, make hotel reservations, rent a car or do anything else that requires a credit or debit card.


    • You can have your paycheck deposited to your prepaid card, which is more convenient than cashing a check.


    • A prepaid card is also a good option for people with poor credit. You don’t have to qualify for a prepaid card because you load your own money onto it.


    • Prepaid debit cards make a nice gift card to give to someone.


  • Parents can use a prepaid debit card for teens as a tool to teach their kids how to manage their money. For example, a parent might want to give a prepaid debit card to his or her teenage driver to use for gas. The parent would load a certain amount of money for gas on the card for the month, and the teenager would then need to plan accordingly.


Fees are involved with prepaid cards. How much the fees are and what the fees are for vary. Typical fees associated with prepaid cards are for card activation, monthly maintenance, ATM withdrawal and ATM balance inquiries. Some cards waive some fees if your balance is high enough or if your paycheck automatically deposits to the card. Each card lists the fee details on the card or on the card packaging. Learn what they are before your choose one.

About the Author

Laura Agadoni has a background in credit union marketing, and her articles appear in various financial publications such as The Houston Chronicle's small business section, The Motley Fool, RISE Blog, The Penny Hoarder, San Francisco Gate's real estate section, Zacks, Opposing Views, Arizona Central's small business section and The Nest's budgeting money section. www.lauraagadoni.com

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