• blog Guides

    What is a prepaid card and how does it work?

    Featured Image

    What is a prepaid card and how does it work?

    Prepaid cards are emerging as a popular alternative to debit cards and credit cards. These cards are pre-loaded with a certain amount of money and can be used to make purchases online and offline. Once the pre-loaded balance has been spent, the card can no longer be used to make purchases until more money has been added. 

    If you’re interested in learning about prepaid cards and whether they’re right for you and your needs, we’ve created this short guide. Keep reading to learn more about how prepaid debit cards work and what makes them different from other cards. 

    Prepaid card meaning

    Prepaid cards work similarly to credit and debit cards, except they’re pre-loaded with a specific amount of money. When that balance has been spent, they can no longer be used to make purchases until more money has been added to the card. This is referred to as ‘topping up’ or ‘loading’ the card.

    Are prepaid cards the same as debit cards or credit cards?

    Although prepaid cards can be used in largely the same type of transactions as debit cards and credit cards, they are quite different in nature. Unlike debit cards, prepaid cards are not linked to a bank account and usually cannot be overdrawn. Unlike credit cards, prepaid cards aren’t connected to a line of credit and will not accrue debt. 

    Where can you buy prepaid cards?

    Prepaid cards are usually purchased from banks, retailers, credit card companies, and other financial service providers. Some prepaid cards come with a pre-loaded amount (e.g. $50 or $100), while others carry no balance until they’re topped up with your desired amount. 

    How can you use prepaid cards?

    Prepaid cards can be used much like credit or debit cards. You can use the card to swipe at point of sale machines, make contactless payments, for online purchases, and even with Google Pay or Apple Pay accounts. Some prepaid cards, like the ZEN Mastercard, can also be used to withdraw money from ATMs. 

    Why do people use prepaid cards?

    Prepaid cards are a great alternative to carrying cash and are generally considered to be much safer. Because they’re loaded with a specific amount of money, prepaid cards are handy for people who have a strict budget and want to avoid overspending. They’re also ideal for travellers, as they can be used to make purchases overseas without needing a bank account. 

    What is a prepaid debit card?

    Sometimes, prepaid cards are referred to as prepaid debit cards. This is largely to distinguish them from prepaid credit cards, also known as secured credit cards. These credit cards require an upfront cash deposit that acts as collateral when making purchases. In this article, we’ll be discussing prepaid debit cards, which are the most popular type of prepaid card used today. 

    What are the benefits of a prepaid debit card?

    There’s a reason why prepaid debit cards are growing in popularity, and that’s because they offer many advantages to the user. These are just some benefits of a prepaid card: 

    No need to carry cash

    Instead of carrying stacks of cash while shopping or traveling, you just need one single card. This not only saves you from digging around in your pocket or holding up the line while you count change, but it’s also a much safer option.  

    Can be connected to digital wallets

    Depending on the type of prepaid card you have, you may not even need to carry the actual card around with you. Many prepaid cards, like the ZEN card, can be connected to digital wallets like Apple Pay or Google Pay. This means you can use them to make online purchases and contactless payments easily. 

    More protection

    If your prepaid card is lost or stolen, you’ll only lose the amount that has been pre-loaded onto the card. While that still means you’ll lose a bit of money, you won’t have to worry about your entire bank account being drained or overdrawn.

    Some prepaid debit cards also come with extra protection for customers, making them safer than cash payments.  ZEN Mastercard users, for example, get ZEN Care Shopping Protection. This provides extra support in case something goes wrong with a purchase, like a cancelled flight or missing item. 

    Manage money better

    Prepaid cards are an excellent way to manage your money and stick to a particular budget. Since they’re loaded with a specific amount of money, you won’t be able to use more than you’ve accounted for until the card has been topped up again. This makes it easier to monitor your cash flow and prevent overspending by accident.  

    Shop anywhere

    Most prepaid debit cards are connected to a merchant like Mastercard or Visa. This means you can shop anywhere these cards are accepted, including online and in-stores. This makes them a convenient alternative for people who don’t want to use credit cards but want to enjoy the same ease of shopping. 

    More accessible than debit and credit cards

    Unlike debit cards, prepaid cards don’t need to be linked to a checking account. This makes them handy when traveling or relocating overseas. And because you don’t need a credit check to buy a prepaid card, they’re more accessible than credit cards. This means they can be used by young people or those who want to avoid borrowing money and accruing debt. 

    Easy top ups

    Topping up a prepaid debit card is easy and instant. With the ZEN Mastercard, for example, you can manage and monitor your balance through a mobile app. When you want to load money onto the card, you can do so using bank transfer, Visa, Mastercard, and Apple Pay or Google Pay. 

    What can I use a prepaid card for?

    Most prepaid cards can be used to shop anywhere that debit and credit cards are accepted. This includes making online purchases and shopping in stores, restaurants, entertainment venues, and more. Because most prepaid cards are linked to merchants like Mastercard or Visa, they can be used overseas when traveling. They can also be given as gifts, in lieu of a gift card which limits spending to a single store, website, or shopping mall.

    How do you put money on a prepaid card?

    Most prepaid debit cards can be topped up quickly and easily. Let’s use ZEN Mastercards as an example.

    Our ZEN Mastercards are linked to multi-currency accounts that are managed through a simple mobile app. You can use the app to transfer funds from a bank account, Mastercard or Visa, or digital wallets like Apple Pay and Google Pay. When you reload the card, funds will instantly show up on your account balance and can be used immediately.

    Because the ZEN Mastercard is connected to a multi-currency account, you have the added benefit of transferring money from 29 different currencies no matter where you are in the world. This makes the ZEN Mastercard an ideal prepaid card for travel.  

    How much can you load onto a prepaid card?

    The amount of money you can load onto a prepaid card will depend on the card issuer and bank account you’re transferring money from. Some issuers may set maximum card limits and some banks only allow transfers up to a specific amount each day. 

    If you’re using a ZEN Mastercard, you can manage your card limits through the mobile app. This includes setting maximum daily limits for withdrawals. You can read more about it here.

    Prepaid cards vs. credit cards or debit cards

    While prepaid cards have similar uses to credit cards and debit cards, they are not the same. Here are the main differences between prepaid cards, debit cards, and credit cards. 

    Prepaid cards vs credit cards

    Most prepaid cards are linked to a credit card network like Mastercard, Visa, or American Express, however there are key differences between them: 

    • You are not borrowing money when using a prepaid card, you are using your own money that you’ve transferred onto your card.
    • You cannot spend more than the amount loaded onto the card, and therefore cannot accrue debt.
    • Prepaid cards do not affect your credit score or build credit history.
    • You don’t have to pay a deposit that acts as collateral. 

    Prepaid cards vs debit cards 

    While prepaid cards are sometimes called prepaid debit cards, they are different to debit cards:

    • Prepaid cards are not linked to bank accounts or credit union share draft accounts. 
    • Unlike some debit cards, most prepaid cards don’t have an overdraft option. This means that you cannot continue using them once the pre-loaded balance has been spent, until they have been topped up again. 

    Do prepaid cards build credit?

    Unlike credit cards, prepaid cards won’t build a credit history. Since you are not borrowing money when using a prepaid card, there is no associated line of credit and the activity on your card is not reported to any credit bureau. This means using a prepaid debit card won’t affect or improve your credit score. 

    If you’re looking to build credit history, then a traditional credit card or secured card may be a better option for you. 

    Are prepaid cards safe?

    Prepaid cards are just as safe and secure as debit and credit cards, and in some ways can be even safer. 

    • Unlike debit cards, prepaid cards aren’t linked to a bank account. If stolen, you don’t have to worry about your account being drained or overdrawn. 
    • Just like debit and credit cards, prepaid cards are protected by a PIN.
    • Some prepaid card issuers offer protection for customers if something goes wrong with a purchase. With ZEN Care Shopping Protection, for example, you can report an issue to us and we’ll take over communication with the seller to help you get your money back. 

    Make life easier with a ZEN Mastercard®

    Reap all the benefits of a prepaid card with the added bonus of a multi-currency account that can be managed through a simple mobile app. The ZEN Mastercard can hold 29 different currencies and be topped up instantly and safely with just a few taps.

    Use the physical card to make traditional payments in-store and withdraw money from ATMs around the world, and use the virtual card to make online purchases. You can also connect your virtual ZEN Mastercard to Google Pay, Apple Pay, Garmin Pay, and Xiaomi Pay to make shopping accessible and easy no matter where you are. 

    Get the ZEN.COM app to set up your multi-currency account in just a few steps and start using your ZEN virtual card immediately.