Direct Deposit vs. Payroll Prepaid Cards: What’s the Difference?

Providing an efficient and reliable payment method to employees is an important part of every business. The relationship between your employees and your business is connected by the exchange of their work for your monetary compensation. Therefore, employees want the most convenient and efficient payment method available, which is why electronic payments are the go-to option for most employees.

Not only are electronic payments faster, safer, easier, and more reliable than paper cheques, but they also save employers thousands of dollars every year versus issuing cheques. That being said, electronic payments are the obvious choice, but a key decision still remains: direct deposit to a chequing account or a prepaid card? Let’s take a minute to explore the differences between these two forms of electronic payment and the potential benefits of choosing prepaid.

Before we focus on the differences, let’s first look at the similarities:

Quick Deposits:

Both direct deposit and prepaid card payments provide employees with faster access to their funds. Funds are electronically deposited to the employee’s account, so you don’t have to print and distribute paper cheques, which then have to be deposited to employees’ bank accounts. All of this can take up a lot of time.


Prepaid cards and direct deposit are a much safer option than cheques, which are subject to fraud, loss, and theft. In the case of loss or theft, a debit card or a prepaid card is replaced by the payment network, with the card balance intact, provided that the cardholder reports the incident in a timely manner. However, not all chequing accounts are associated with a payment network such as Visa® or MasterCard®, so prepaid cards may have an upper hand in this area.


Prepaid cards and direct deposit provide convenience to employees by making the payment process fairly seamless. Instead of picking up a cheque, going to the bank, and waiting for their funds to be available, employees simply wait for their money to be deposited to their accounts. Both payment options also allow employees to do online banking through a virtual portal.

As noted above, these payment methods are very similar in many ways. They are both great options for employers and employees, but there are several reasons why prepaid cards hold an advantage for many employers and employees:

Employees without Bank Accounts:

As an employer, you want to consider employees who are unbanked or underbanked. According to the FDIC, approximately 9 million households in the U.S. are unbanked. Direct deposit is not an option for these individuals because many do not have the necessary requirements to obtain a bank account; and others simply prefer not to use the traditional banking system. Prepaid cards, on the other hand, are perfect for these employees, since they do not need a bank account to receive their compensation.

An additional benefit is that prepaid cards provide a means to shop or pay bills online. Many individuals without bank accounts do not have or qualify for a credit card, so this provides a significant advantage.

Prepaid is Cheaper and Fees are More Transparent:

Although banking fees and prepaid card fees are typically pretty similar, a study by Bretton Woods Inc. found that prepaid card fees can, in fact, be lower. This makes prepaid cards a competitive alternative to direct deposit to chequing accounts. According to the study:

– Banking fees range from $218 to $314 annually for keeping a chequing account
– By comparison, prepaid card fees range from $76 to $261 annually when cardholders use direct deposit to their prepaid card. Without direct deposit, the fees range from $184 to $380

Not only do prepaid cards often have cheaper fees, but they are also more transparent with their fees. Transparency is important to cardholders. People often lose their trust in banks because of all of the “hidden fees” they are charged.

Debt Control:

Prepaid cards can help employees stay out of debt because they can only spend the amount that has been loaded on the card. By contrast, direct deposit is connected to the employee’s chequing account, which will most likely include an overdraft limit. An overdraft can prove helpful in tight monetary situations, but it also enables overspending, which can lead to costly overdraft fees for cardholders.

Personal Banking Information:

To provide direct deposit to employees, a company are required to collect personal banking information. First of all, many employees are uncomfortable handing out this information. And secondly, gathering all of the required banking information creates more work for your payroll team. Banking information is not required with prepaid cards. Since the employer issues the cards, they are able to easily transfer the funds onto the cards, giving them more control over the entire payment process.

Bank Account Tracking:

Payroll becomes complicated with direct deposit when an employee decides to switch or shut down their bank account. Resolving the issue can take extra time and effort for the payroll team and delay payment to the employee. With prepaid cards, employers don’t have to worry about the bank. Instead, they are in charge of managing the accounts.