You Want To Put Money Where?
When I started in banking over 30 years ago, there was mainly one card that was used by customers. That was a credit card. Today with the decreased use of checks and the increase in alternatives to banking, there has been an increase in the types of cards available to customers. In addition to credit cards there are also debit cards, and prepaid cards. Along with the increased number of different cards have come questions about the differences. Also, bank customers sometimes refer to debit cards like prepaid cards. They have will say, “I want to put money on my card” when they are making a deposit. Sometimes I thought they were confused, but I am the one who had the confused look when I got such a request. It’s time for a quick lesson on cards. Let’s begin with a credit card.
Credit cards are actually loans. Since it is a loan, you have to apply for a credit card by completing an application. Your credit, income amount, employment are checked to determine whether or not you will be approved. If you are approved, then you are given a certain limit you can borrow. When you make a purchase, you are borrowing with the credit card. When you receive the monthly statement, you can pay the whole amount back at once or you can make the minimum monthly payment. If you pay back less than the whole amount that you borrowed, then you will have to pay interest on the outstanding balance until it is paid off. Another feature about a credit card is that it is a revolving loan. That means that once you make a payment to reduce your balance, you are able to borrow from the card again. (Example: If you have a $500 limit and spend $300, then you still have $200 available to borrow. If you make a payment of $100, then you will now have approximately $300 available to borrow, less any interest and fees you may have had to pay). This is the only card that I talk about that is a loan.
Debit cards may seem like a credit card at times but is definitely different. A debit card is actually attached to a checking account. Therefore, the money used to make purchases with a debit card is your money and not a loan. Before debit cards, bank customers with checking accounts withdrew cash from their accounts or wrote checks to make purchases. Debit cards allow you to access money in your checking account to make purchases at stores or online. Usually, you are only allowed to make a purchase up to a certain daily amount or the balance in your checking account, whichever is less. If there is not enough in your checking account to make a purchase, then you need to deposit more money into your account. Otherwise, you may end up paying Non-Sufficient Funds (NSF) or Overdraft Fees. These fees range from $25 – $39, so you want to be very careful when using your debit card. Click here for more information about fees and how to avoid them.
Prepaid cards are similar to debit cards but are not attached to checking accounts. Also, they may have a Visa, MasterCard, or American Express logo them. This can make it difficult to tell from a debit card. However, these days debit cards have the words “Debit Card” written on them. Usually, you have to pay a fee to purchase and activate a prepaid card. You cannot use it until it is activated. Prepaid cards are purchased with a set amount of money already on the card. (Example: $50, $100, $150, $500, etc.) There may be a fee each time you use a prepaid card and/or check the balance. This can become expensive. Also, there different maximum amounts that can be loaded onto a prepaid card as well as maximum daily amounts that can be withdrawn or purchased on a prepaid card. Finally, some prepaid cards cannot be used again after the amount loaded is used, while others can be reloaded. Sometimes there is a fee to do this too. Loading money on the card is what makes it similar to a debit card but, as we see, they are not the same. However, the lines are becoming more blurred as companies that are not banks issue debit cards.
Some companies are issuing direct deposit prepaid debit cards. These cards can be purchased from stores and used to have your paycheck directly deposited on them without a bank account. They are a combination of a debit card and a prepaid card. Click here for more information about direct deposit prepaid debit cards. There are several types of cards, but you do not put money on a bank debit card. But someday you might. All the best.
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