Prepaid credit cards can be extremely useful tools, allowing consumers to avoid carrying cash, giving bad credit customers the equivalent of a MasterCard or Visa, or allowing parents to limit the spending of their teen or college-age children. In reality, prepaid credit cards are not credit cards at all, but “stored value” debit cards that stop the user from spending more than the value of the card.

The idea behind prepaid credit cards is great for the consumer. However, like every product in the credit card industry, prepaid credit cards are issued by their sponsoring financial institutions with the goal of creating profit. That means consumers must pay for the convenience a prepaid credit card provides. Financial institutions tie fees to many aspects of card usage, from applications fees to per-transaction fees to monthly service charges to reload fees. These fees vary widely throughout the industry, and may be called different names by different institutions.

Therefore, even more than with standard credit cards, it is important for prepaid credit card users to read the fine print before signing up for a card, and to contact the issuing financial institution if anything is unclear.

Published 09/16/05 (Modified 05/07/12)