Prepaid debit cards have come a long way since their inception.
According to the 2015 Bankrate Prepaid Debit Card Survey, the market is no longer dominated by nonbanks, as some bank-managed cards have entered the picture.
The fee structure has shifted to more closely resemble traditional checking accounts, and most cards are now covered by the Federal Deposit Insurance Corp.
Instead of resorting to the envelope system with cash in separate ones for groceries, gasoline, dry cleaning and other bills, you can set limits on your spending by using one or more prepaid cards. Here’s how.
Consider the purchasing of a prepaid card and planning how you’re going to load it as pre-budgeting. By spending what’s on a prepaid card instead of falling back on a credit card, you can’t go through money you don’t have. The balance can be allocated toward paying bills or buying groceries, for example, or you can even assign a separate card for weekly lunches and lattes.
“This works especially well for people who don’t naturally track their spending because it sets limits,” says Carey Ransom, chief marketing officer of Payoff Inc., a digital financial services company. “They can only draw from the amount on their card.”
By reloading your card with a set amount at a regular frequency, you become more cognizant of your purchasing behaviors, Ransom says.
“We find that our clients often don’t realize what they spend day to day,” Ransom says. “If they decide to give themselves $100 a week for their weekly expenses and reload that amount every Sunday, then they can notice if they try to spend more than that or if they spend less, which would be the goal.”
Similar to how writing down what you eat helps you indulge less, being aware of how you spend helps you develop budget constraints.
Nobody wants their carefully budgeted funds eaten up by a fraudster. To discover if transactions other than yours are being made on your prepaid account, authorize the financial institution backing your card to send an alert to your smartphone every time a transaction occurs.
“This is a great fraud prevention tool,” says Brad Fauss, general counsel and interim executive director for the Network Branded Prepaid Card Association.
Besides getting transaction alerts, you’ll want to be able to access your balance via your smartphone, find out where you can reload money onto the card and be notified when funds are deposited in your account.
Whether your vacation keeps you in the States or takes you overseas, having a prepaid travel card makes budgeting for your trip a breeze. They work the same as other general purpose reloadable cards, but with some additional benefits. If you go out of the country, you load the card with U.S. dollars and then with each transaction, the money is converted to the prevailing rates in the country you’re visiting.
“These cards usually have overseas benefits like no foreign transaction fees,” Fauss says. “And, they are safer and more secure than cash. If one is stolen, the thief won’t be able to compromise your entire bank account.”
No matter what their age, kids always seem to need something. Instead of pulling out the credit card when you’re in a store, you can load their allowance or spending money onto a prepaid card.
“Ten is a good age to start children tracking their own budget,” says Molly Steele, debit cards manager for Navy Federal Credit Union. “Prepaid cards will help put an end to last-minute ATM trips and the constant asking for money.”
Steele advises parents to look for a card they can monitor so they know how much the child is spending and where he or she is shopping.
There always seems to be some pesky expense you need to take care of online. Renewing your driver’s license, buying a national park pass or subscribing to a newspaper with a pay wall often require a credit card. If you’re trying to get out of credit card debt one account at a time, it doesn’t make sense to use a credit card for online purchases. Use your prepaid card instead.
“Making expenditures with a prepaid card while paying off a credit card balance is a good idea because it helps with budgeting and still gives you some purchase protection,” Ransom says.