How is Debit Card Different From a Prepaid Card?

Prepaid cards allow you to make online and offline payments just by tapping them. Unlike debit cards, prepaid cards are not directly linked with your bank. You have to load money to the card in order to use it. You can only spend the money you have placed in the prepaid card account in advance. This process is usually known as loading money onto the card.

One thing you must remember is that you can spend more money than you have added in your card. Some card issuers allow this facility but they charge a fee for overspending. However, you can use prepaid cards just like debit cards to make online or offline purchases, cash withdrawal, shopping and much more.

A prepaid card is more like a gift card you need to add money to the card in order to spend it. It works similarly to a debit card, but with a prepaid card your current balance act as your spending limit Once you exhaust the entire balance, the card becomes unusable until you recharge it again. It can be used as an alternative to cash. But once you are out of balance, you need to reload the money to the card for any further transactions.

Debit cards are directly linked with your account and help you to access the cash you have in your bank account. With debit cards, the money is deducted from the linked bank account right after initiating the transaction. Hence, it is important to have a savings or current account with the bank to avail a debit card.

You can make online or offline purchases or withdraw cash using your debit card. The only restriction for this is that you can only spend the money that is available in your bank account. On the contrary, credit cards allow you to shop even when you don’t have the money. They are a great medium to borrow money from the financial institution and repay it as per your convenience.

A debit card is issued against your savings or current bank account, hence, it is important to have an account with the bank in order to avail a debit card. It is ideally offered by the bank when you open a savings account. It is directly linked with your bank account and whenever you make a purchase, the money gets deducted directly from your bank account.  It is basically used to access your funds and your spending limit is the funds you have in your account. Apart from this, you can also make online and offline purchases from your debit card and earn benefits like rewards, cashback, complimentary tickets and much more.

Also read: Why are credit cards better than debit cards?

Knowing that you can shop and save via both prepaid or debit cards, it is important to analyze which suits you the best. To do so, you must know the difference between a prepaid and a debit card. Here is everything you must know if you are confused between both of these:

Bank Account

There is no requirement of a bank account in case of a prepaid card, however, in order to avail a debit card, you must have a savings or current account with the bank. This is because your debit card is directly linked with your bank account. On the other hand, you have to add money or recharge your prepaid card in order to use it.

Spending Limit

The spending limit is the maximum amount that you can spend with your card. In the case of prepaid cards, the spending limit is the balance you have in your card. Once it is exhausted, you are required to recharge your card in order to use it. On the contrary, with debit cards, you can access the funds in your account. Therefore, the spending limit for the same is the amount of money you have in your linked bank account.

Fees

Debit cards come with an annual fee that the bank charges to provide you access to your funds. If we talk about debit cards, then most of the debit cards charge fees for reloading the money, withdrawing cash, inactivity or maintenance charges. This is one of the major differences between prepaid and debit cards. Hence, debit card is a better option if you want to save on your expenses but don’t want to pay high charges.

Cashback or Reward Benefits

Unlike credit cards, most of the debit cards allow you to earn rewards or cashback on your purchases, which you cannot earn with prepaid cards. Apart from rewards, you can also earn some other privileges like complimentary lounge access, free memberships and more with debit cards. These benefits are not offered by prepaid cards. Therefore, if you want to save on your expenses, then choosing a debit card would be a better option as compared to a prepaid card.

Suggested read: Difference between credit card and debit card

No doubt that both cards can be used to make online and offline purchases, but the best option for you depends on what you want from a card. You can go for a prepaid card if you don’t have a bank account and you can’t open one. Prepaid cards can also be a good option if you are one of the strict budgeter. You can only load the money that is required and use that amount for further payments. On the other hand, a debit card would be the right option if you have a bank account. The debit card easily allows you to access cash from your bank account conveniently. Also, there are plenty of fee-free cards available in the market.

Choosing between a prepaid or debit card totally depends on your preference and requirements. Usually, people who have a bank account prefer to opt for a debit card as it lessens the burden of carrying cash. People, who are not able to open an account, choose to go for the other option. Prepaid cards are also preferred by parents who want to give their kids a limited amount of money. However, if you want to build your credit score, then you should consider getting a credit card, that will help you improve or build your credit history.