Cash, credit cards, and debit cards are still the primary ways in which most transactions are completed. However, due to the impact of internet technologies and online transactions in recent years, we have seen a surge in prepaid and virtual cards.
The global prepaid card market size in 2019 was estimated at $1.73 trillion. By 2030, it is expected to increase to $6.87 trillion – a compound annual growth rate of 18%. The many benefits of prepaid cards help explain this expected surge in growth.
Prepaid cards are convenient as you can only spend as much as you load onto them – much like a Pay-As-You-Go phone balance. Although individuals primarily use them, it’s also gaining traction amongst businesses due to their flexible use cases.
But what are prepaid cards, and why are they so popular? Let’s find out.
What are the main benefits of prepaid cards?
The main benefits of prepaid cards are as follows:
- You are not subject to credit checks
- They can aid in budgeting
- Available in virtual and physical form
- Fraud prevention
- No overdraft fees
- It’s safer than cash
- Some still allow you to withdraw cash from an ATM
- They keep your bank statements clear and concise
- You can send and receive money
- They can be used as a low-fee travel card
- They can be used as a savings account
Let’s explore these in more detail.
You are not subject to credit checks
You will be subject to a hard credit check when you take out a credit card. This is where the bank account provider takes an in-depth look into your financial history – such as whether you have borrowed money in the past, if you have kept up with payments or not, and if you still have an outstanding balance.
This all culminates into a credit rating where you are rated on your reliability to borrow money and pay it back on time. Those with a poor credit rating are typically rejected when applying for a new credit card.
With prepaid cards, you do not borrow money; it is a debit card that you have to load money onto. Therefore, a credit check isn’t made, and your credit history is not factored into your application.
All you need to provide is your name and registered address. This allows anyone to get their hands on a prepaid debit card – provided they are above 18. In order to open a Getsby account and get access to our virtual cards, you need to be 18 and a resident of EEA, UK or EFTA.
They can aid in budgeting
Since you have to load cash onto prepaid debit cards, they can be a fantastic way to budget and limit your spending.
Suppose you have a checking account where all your income is transferred into. It can be hard to track where you spend money, and it can be tempting to overspend after payday. With a prepaid card, there is no overdraft, meaning you have a fixed amount of money to spend until the balance reaches zero. Once it does, you cannot use it to purchase anything else until you load more money onto it.
Knowing that there is a limited amount of money on your card forces you to be conscious of your spending.
You can also use prepaid cards to budget for specific expenses. For instance, you can set up a direct debit from your main checking account to your prepaid card. The prepaid card can then be used to pay bills, spend on grocery shopping, or for personal entertainment. When the card’s balance reaches zero, you will have to wait until the next month to use it again.
Available in virtual and physical form
There’s been a surge of virtual bank cards in recent years, and understandably so. The ability to make purchases without needing a physical card means that you can make transactions at any point in time.
It’s also great for those trying to reduce their environmental impact. There is no card packaging, no plastic used in making the card, and no carbon emissions involved in delivering the card to your door.
One of the many risks associated with using credit or debit cards online is that your card details can fall into the hands of hackers and malicious people. They can then use your card to make online purchases, running your funds dry.
Virtual prepaid cards mitigate this since you can only load a certain amount of money on it at any given moment. This prevents fraudsters from having access to your total funds, thus limiting the number of purchases they can make and keeping the money in your checking or savings accounts safe.
No overdraft fees
A traditional bank account will allow you to go into overdraft. This means that your balance will go below zero and into the minus. Whilst this can be advantageous in specific scenarios where you need to make an urgent purchase, it also poses a significant problem.
Going into your overdraft often means that the card provider will slap hefty fees called overdraft fees. This is because you are spending money you don’t have, which is ‘borrowed’ from the bank. The more money you borrow and the longer it takes for you to clear the balance, the bigger the overdraft fees will be.
So if you don’t keep tabs on your bank accounts balance regularly, you may find that you have incurred significant overdraft fees that you must then pay back.
Prepaid cards avoid this by not having an overdraft. Suppose you do not have sufficient funds to make the transaction. In that case, your card will simply be declined, ensuring you never overspend.
It’s safer than cash
We’ve all heard the term “cash is king”, but it doesn’t hold as much these days. Over the last two decades, there has been a big push to make things more convenient with card payments and mobile payments.
Part of the reason why is that carrying cash can be a hassle. You have to fiddle around with banknotes and change, which can be cumbersome. However, another primary reason is that having wads of cash can increase your risk of it getting lost or stolen – and once it is, it is tough to recover.
Prepaid debit cards avoid this altogether. Should your card get stolen or go missing, you can easily block it from being used and transfer your funds out. This ensures that your money is always safe and protected.
Can allow you to withdraw cash from an ATM
Although we have seen a massive movement towards cashless payments and transactions, there are instances where carrying cash is necessary.
With some prepaid cards — such as the Getsby Virtual Green Card — you can still withdraw cash from an ATM should you need to. Simply go to an ATM from any financial institution that has a contactless symbol. Keep in mind that although most ATM withdrawals are free, private providers may charge you a fee.
Keeps your bank statements clear and concise
From grocery shopping and paying bills to our daily coffee and monthly subscription payments, we make dozens of transactions every month. This means that when you look at your bank statement, you may find you have hundreds, if not thousands, of transactions to sift through.
This can make it incredibly tricky to know exactly where your money is going and how much you have spent. One way to counteract this is to have a separate prepaid card for different expense categories.
For example, suppose you have a prepaid card for dining out. Instead of these transactions being hidden away amongst your other payments each month, your bank statement will show one lump sum payment to your prepaid card. You can then look at your prepaid card transaction history to see precisely where and how much you spent on dining out that month.
Can be used as a low-fee travel card
Bank cards in the UK can be used abroad on holiday. However, many of them hit you with a whole host of fees. ATM withdrawal fees, transaction fees, and balance reversal fees can mean that your holiday is far more expensive than you initially anticipated.
With our Green and Black cards, you won’t pay any transaction or balance reversal fees. You also only pay €0.99 after the second month with the Green card, and the Black card has no monthly fee at all. This ensures that your hard-earned money goes toward enjoying your time on vacation.
Can be used as a savings account
Saving isn’t easy. It requires you to stick to a budget and ‘pay yourself first’ by putting money away in a savings account as soon as your paycheck comes in.
Whilst this sounds simple in theory, it’s much more difficult in practice. After all, we all have bills and expenses we need to keep up with in our daily lives, and if you leave the money in your checking account, there’s a high chance it will be spent.
That’s why using a prepaid card as a savings account can help you save towards any goal. Whether it’s for a birthday gift or an upcoming trip, ensuring that the funds are out of sight can prevent you from spending them.
Frequently Asked Questions (FAQ)
What is a prepaid card?
A prepaid card is a type of debit card that you load money onto. Once the card balance reaches zero, it cannot be used to complete any transactions until more money is deposited.
A prepaid card can be used for online and in-store transactions, allowing you to separate your transaction history from your main checking account. Also, unlike traditional debit cards and credit cards, you cannot go into overdraft or borrow money. This ensures that you can only spend the exact balance on the card before having to top up its balance.
How can you add money to a prepaid card?
You can top up your balance by logging into your online account. Simply enter the amount you would like to add and the credit or debit card details from which you are transferring funds. Remember that you can add up to €500 at a time and up to €1,000 daily.
Are prepaid cards right for me?
Virtual prepaid cards are great for any individual or business who wants to track their spending habits more consciously, reduce their carbon footprint, and have all the benefits of a debit card without using their main checking account.
As mentioned in this article, prepaid cards have a wide range of uses. As long as you are above the age of 18 and are registered at an address, you can apply for one.