If you spend any time surfing the web or make any sort of purchase online, then you know how important it is to have a debit or a credit card. Some people do not feel safe using a debit card attached to their bank account for online transactions. Other people might have blemishes on their credit or no credit history and therefore have a difficult time securing a regular credit card.
This is where prepaid debit cards and secured credit cards can come in handy. Both have their pros and cons, and whether or not you decide to have one or the other or both depends on your end goals.
What's a Prepaid Debit Card?
Prepaid debit cards work like regular debit and credit cards except that they are not linked to a bank account. You need to load money to the card, and what you spend is deducted from the balance. When the balance goes to zero, you have to reload money to the card again.
There are usually fees associated with these cards, so read the fine print and shop around for your card. Some issuers might charge a fee for each transaction, while others might charge a monthly maintenance fee with all transactions being free. Examples of prepaid debit cards include the Bluebird® from American Express® and the ACE Elite™ Visa® prepaid debit card.
What's a Secured Credit Card?
A secured credit card is a credit card with a balance that matches the amount of money placed in a secured account. Credit limits reflect the amount of money in that account.
You have to pay a deposit to get your secured credit card, but that deposit is usually refundable. There are no minimum credit history requirements to qualify, and they're available with low fees or no fees. Examples of secured credit cards include Capital One®, First Premier® and Horizon Gold®. This type of card functions just like a credit card.
What Are the Differences?
Whatever amount of money you load to your prepaid debit card is what you can use for purchases. There's no credit check needed to obtain this type of card, but you're not building credit either.
Secured credit card issuers typically report the status of the card to the three credit bureaus: Equifax®, TransUnion® and Experian®. However, you should check to make sure they're doing this because not all issuers do. Also, keep in mind that after using the secured credit card successfully for a period of time, some credit card companies may allow you to easily move from a secured credit card to a traditional one without closing your original credit line – and that counts as a positive mark on your credit report.
Which Is Better?
Which is better depends on your ultimate goal. If you just want a card you can use online that is separate from your regular bank account and therefore minimizes the risk of fraudulent charges in the event the card is compromised, then a prepaid debit card can be an ideal choice. If you're looking to improve your credit score, then a secured credit card is likely the better option.
- ACE Elite Visa Prepaid Card
- Capital One: Secured Mastercard
- American Express Bluebird Card
- Consumer.gov: Prepaid Cards
- Capital One: How Do Secured Credit Cards Work?
- Discover Credit Card Resource Center. "What is a Secured Credit Card?" Accessed Feb. 28, 2020.
- Experian. "Prepaid Card Basics." Accessed Feb. 28, 2020.
- Consumer Financial Protection Bureau. "What Types of Fees Do Prepaid Cards Typically Charge?" Accessed Feb. 28, 2020.
- Discover. "Discover it Secured." Accessed Feb. 28, 2020.
K.A. Francis has been a freelance and small business owner for 20 years. She has been writing about personal finance and budgeting since 2008. She taught Accounting, Management, Marketing and Business Law at WV Business College and Belmont College and holds a BA and an MAED in Education and Training.