Prepaid credit cards are new twists on the popularity of plastic money. The name says it all. They are cards that function just like credit cards in nearly all aspects, but you have to pay the spending limit upfront. It's like a prepaid phone card you can use to buy anything at all.
There are a lot of benefits to a prepaid credit card, as well as many different applications for the technology. The most obvious benefit is that you can't go over your limit. There is no such thing as over drafting from an account. When the account is empty, you simply cannot use the card. You have to refill it before any more purchases can be made. This is very good for people who have poor credit history or impulsive spending habits. It can help people avoid debt and be a good first step in rebuilding a low credit score.
These cards are also good for teenagers whose parents may want a middle step before getting a full service card for their children. Parents can fill the card with an allowance (or teens can put summer job paychecks into the card) whenever they want to, and junior gets to enjoy the freedom and security of credit card spending. Purchases can also be monitored with this system, which can help a teen increase his financial savvy. By seeing exactly where his or her money is going, they will be more likely to develop good habits they can keep throughout their adult life. An added bonus is that these cards frequently look the same as full-service cards, which enables teenager to keep their pride intact when the go out with their friends.
Pre-paid credit cards are also being used for specific situations. Most prevalent is the Visa Gift Card, which can be bought in any denomination and given as a gift. Recipients can spend the money anywhere, any way they wish. Another specific application is Visa's Travel Money Card. It can be loaded directly from an ATM with funds from a checking or savings account, and then carried in place of cash or travelers checks. It is also covered under Visa's Zero Liability Plan, which protects it against fraudulent purchases, card theft, and identity theft.
A third application that is growing in popularity is the payroll card. The payroll card is a great way for companies to reduce payroll costs and help the environment. A payroll card can be given to every employee of a business and then at the end of the pay period employees receive a direct deposit of the funds they have earned. This is available immediately upon deposit, which saves the employee the time it would take to go to the bank, wait in line, pay a cashing fee, etc. It also saves the company the time and money it takes to print and mail paychecks. Employees who may not have a bank account can take advantage of the system as well. Since all funds are deposited into the card account, there is no need for separate checking or savings accounts.
There are a few downsides to the prepaid card. Most cards require a start-up fee, and while for many companies this fee is minimal, some of them are substantial. Another downside is that many businesses that accept automatic payments from bank or credit card accounts will not accept them from prepaid cards. For most consumers this is a minimal annoyance, but for some it can be a significant setback. As with a normal credit account, when selecting a prepaid card it is best to research your options and make an informed decision on the best card to meet your individual needs. |
