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The 411 on prepaid cards

By Carla Hindman, Director of Financial Education, Visa Canada

In today's society, credit and debit cards are becoming increasingly necessary, especially because we need them to do a lot of different things – shopping online, renting a car, booking a flight. Without a chequing or savings account, we'd be forced to carry around large amounts of cash, which isn't the safest or most convenient option.

One increasingly common money management tool for people without access to bank accounts is prepaid cards. These cards look and work much like regular debit cards except that instead of funding them through a chequing or savings account, you load money on the card in advance.

Common prepaid card features include:

  • You don't need a bank account or solid credit rating to obtain one.
  • They start out with a zero balance until you add money. Purchases or ABM withdrawals will diminish the card's balance until it reaches zero and you discard it (as with gift cards) or you reload the card.
  • Spending is limited to the amount loaded on the card, so you can't buy more than you have.
  • If branded with a logo like Visa or MasterCard, they can be used anywhere that network is accepted and are covered by fraud protectionpolicies.
  • Most allow ABM cash withdrawals and online or phone purchases.
  • They're safer to carry than large amounts of cash.

Common types of prepaid cards include:

  • Reloadable cards – to which more money can later be added.
  • Gift cards – used until their balance is depleted; they're not reloadable.
  • Travel cards – a safe alternative to cash and travelers cheques.
  • Healthcare cards – allow point-of-service access to funds in your Flexible Spending Account or Health Savings Account to pay for qualified medical expenses.

Prepaid cards may come with fees and restrictions, so it's important to read the card's terms and conditions carefully and to shop around for the best deals. In Canada, many prepaid card issuers have recently eliminated most fees.

Here are a few questions to ask when comparing cards:

  • What identification do I need to buy this card?
  • Where can I use it? (Certain retailers only? Online? Phone?)
  • Is it reloadable?
  • Is there an expiration date?
  • Will I receive monthly statements?
  • Can I check balances by phone or online?
  • What fees apply? Common fees include those for card activation, reloading funds, balance inquiries, ATM or bank withdrawals and declined transactions.
  • What happens if it's lost or stolen?

To learn more about how prepaid cards work, you can download a free "Prepaid Card Basics" brochure at Practical Money Skills Canada (, a free personal financial management program run by Visa Canada.

Bottom line: Always make sure you fully understand the terms and conditions of any financial product or account before signing up.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

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