Know the Differences Between Debit, Credit, and Prepaid Cards

Pros and Cons of using each type of payment card.

Laura Adams, MBA,
December 20, 2012

Know the Differences Between Debit, Credit, and Prepaid Cards

Money Girl Tip: Know the Differences Between Debit, Credit, and Prepaid Cards

One of the best ways to stay safe from fraud, improve your credit, and manage your finances is to know the best ways to use debit, credit, and prepaid cards.

Here are the main pros and cons of using each type of payment card:

Debit Card Pro: It’s linked to your checking or savings account, so you spend your own money with no interest charges or fees. However, you may incur an overdraft fee if there aren’t enough funds to cover a debit card purchase.

Debit Card Con: Your liability for fraud is limited to $50 if you report it within 2 business days. However, if you don’t catch unauthorized transactions quickly you could lose all the money in your account. Plus, debit cards don’t help you build credit because they aren’t credit accounts.

Credit Card Pro: Unlike a debit card, your total liability for fraudulent credit card transactions is limited is $50.
Additionally, you build credit by making charges and paying your minimum balance on time each month.
However, maintaining a high balance relative to your available credit limit can hurt your credit.

Credit Card Con: You borrow money that must be repaid with interest, when you carry a balance from month to
month. You’ll also be charged fees if you don’t pay amounts owed on time.

Prepaid Card Pro: You spend money deposited on the card, which is not linked to a bank or credit account.

Prepaid Card Con: There may be unexpected fees for transactions such as monthly maintenance, loading funds, making purchases, or checking your card balance. You have no fraud protection for reloadable prepaid cards or store gift cards, nor does using them help you build credit.

To learn more about the differences between debit, credit, and prepaid cards, visit the FDIC (fdic.gov) and FTC (ftc.gov) websites.

Other Links You Might Like:
Bank or Credit Union—Which Is Better?
Best Tips to Improve Your Credit Score Fast
25+ Best Tools for Money Management and Productivity
The Best Checking Accounts Allow You to Bank the Benefits

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