6 Things To Know When Using An Open-Loop Prepaid Card
Interested in using a reloadable open-loop prepaid card? You aren’t the only one.
There’s more than just debit and credit cards available for your purchasing and financial needs, and the world is taking notice. Prepaid is the fastest-growing form of payment in the United States, with more than 50 percent of people buying a prepaid card for personal use in 2015, compared to 19 percent in 2008. In 2003, prepaid cards accounted for 800 million transactions worth $20 billion. In 2012, the numbers were 9.2 billion and $220 billion, respectively. And these numbers are only going up.
When dealing with financial matters, it’s important to know what you’re getting into. So before you pick up a prepaid card, make sure to familiarize yourself with exactly what an open-loop prepaid card is, and why you can benefit from having one (and believe us, there are lots of reasons).
1. Prepaid Cards Have the Advantages of Both Debit AND Credit Cards
Just like your credit card, prepaid cards have the benefit of being able to be used anywhere that MasterCard or Visa is accepted. That means you can use a prepaid card to make day-to-day purchases at stores, online, and virtually anywhere in the world. You can even use your card to pay bills online. However, the difference between a prepaid card and a credit card is a big one: there is no actual credit used! Similar to a debit card, when you use a prepaid card to make a purchase, withdraw money from an ATM, etc., you are spending your own money. In order to make purchases, you simply have to load money onto the card. Also, although merchants will typically charge a higher fee for debit cards, prepaid cards count as a credit card, so you will save on fees and even be able to shop at places that don’t accept debit cards. It’s truly the best of both worlds.
2. Pay Attention to Fees
The great thing about a prepaid card is that, unlike a credit card, you don’t have to worry about interest charges. Depending on your card setup, you may incur certain fees when using your prepaid card, but in the long run, it’s still far more affordable than other traditional payment methods like bank accounts or credit cards.
Also, be aware that you may temporarily be charged an additional amount (a tolerance) when using your card at certain institutions, such as restaurants, bars, or salons, (up to an extra 20 percent) to cover tips, etc. So make sure to always be mindful of how much money you have on your card. If you’re concerned, you can always check your balance instantly online, via your mobile app, or call your card’s 24/7 customer service line.
3. No Credit Is Required, But You Do Have Limits
Originally, prepaid cards were created to help people with poor/non-existent credit, or for individuals without bank accounts. There is no credit check required for a prepaid card and, while using a prepaid card won’t help build up your credit, you don’t run the risk of getting into debt, missing a payment, or damaging your credit.
While all of the above benefits still apply, the appeal of prepaid cards has expanded in recent years and they are now being used by everyone. In fact, the largest increase in prepaid ownership has come from people in the highest income brackets. More than 33 percent of prepaid cardholders are earning six-figure salaries.
Regardless of your tax bracket, credit cards can potentially expose you to a lot of trouble — but with a prepaid card, you can’t spend beyond your means. The card only has as much money as you put on it. And unlike debit cards, you can’t go into overdraft with a prepaid card either.
According to a study by IPSOS and MasterCard, “73 percent of consumers believe that prepaid could prevent them from going into debt.” Canadian Prepaid Providers Organization found that “82 percent of Canadians want payment cards that avoid overdraft or interest charges.” This makes prepaid cards a great tool for young people trying to develop budgeting skills or anyone trying to stick to a budget.
Prepaid cards generally have certain limits:
– Maximum/minimum load amounts
– Maximum daily POS purchase amount
– Maximum daily ATM withdrawal amount
Check with your card provider to find out what the limits on your card are.
4. Loading Funds Onto A Prepaid Card Is Easy
Putting money onto a prepaid card is easy, because there are many different options. With corporate programs, prepaid cards are issued and loaded by an employer, business, or government agency, but in this instance we’re looking at how you, the user, can put money onto a card.
– Payment station (e.g. retail location)
– Electronic online payment
– Transfer from another account
5. There Are Two Different Kinds of Prepaid Cards
There is a difference between an open-loop and a closed-loop prepaid card. A closed-loop card is essentially a disposable gift card–the card is preloaded with funds and you can’t load more money on it, so once the card is out of money it can be thrown out. An open-loop card is reloadable, therefore more money can be added to the card and it can be used multiple times. An open-loop card is great for regular purchasing and is similar to a debit/credit card.
6. Your Money Is Safe With Open-Loop Prepaid Cards
Just like with MasterCard or Visa, open-loop prepaid cards offer zero liability protection against fraud, theft, and other financial crimes. Also, if you lose your card, you simply need to request a replacement—your card balance stays the same. So don’t worry; your money is in good hands.