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Prepaid card vs. debit card: What's the difference?

CNBC Select answers common questions surrounding prepaid cards and debit cards, so you can familiarize yourself with how they work and which is the best choice for you.

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Prepaid cards and debit cards are both widely accepted at merchants worldwide, but one is preloaded and the other is not.

Debit cards are linked to a checking account, while prepaid cards aren’t and instead require you to load money onto the card.

Neither card helps you build credit, but despite this drawback, both prepaid cards and debit cards can help you manage your money in different ways.

If you’re considering which type of card to use, review how each card works and look for any associated fees. To help you make an informed decision, here’s a breakdown of how prepaid cards and debit cards work.

What is a prepaid card?

When you check out at the supermarket, you'll often see an array of gift cards for purchase, and there may also be prepaid cards for sale. Like a gift card, you add value to the prepaid card before you can use it.

You can use a prepaid card to make purchases and pay bills, just like debit cards. Prepaid cards are accepted nearly everywhere debit cards are since they are often backed by a major card network, such as Mastercard or American Express. (However, they don't help you build credit.)

The obvious disadvantage of using a prepaid card is that you can only complete transactions up to the amount you have loaded onto it. If you add $100 to your prepaid debit card, you can only spend up to $100. Anything greater will be declined until you add more money to your card.

That said, you may want to use a prepaid card over a debit or credit card if you have a history of overspending. Giving yourself a tangible limit (the money you load onto the card) is a good way to help you stick to your budget.

And if you're a parent looking to teach their kid how to manage money, a prepaid card can be a good starting point. Some prepaid cards like Bluebird by American Express have family accounts, which allow primary account holders to set limits on spending and restrict ATM access.

Like most financial products, prepaid cards charge fees including: card opening fee, monthly usage fee, ATM fee, reload fee and foreign transaction fee. For instance, the PayPal Prepaid Mastercard® charges you $4.95 a month to use the card. However, you can find prepaid cards that have minimal fees, such as Bluebird by American Express, which has no card opening fee when you open an account online and no monthly fee.

What is a debit card?

A debit card is linked to a checking account and provides quick and easy access to your money. You can use a debit card to make new purchases, pay bills and withdraw cash from an ATM, bank or credit union.

Debit cards work similarly to cash, where you can’t spend more money than you have in your account unless you’re enrolled in overdraft protection. When you complete a transaction with a debit card, the money is automatically deducted from your checking account. So a $50 purchase would reduce your checking account balance by $50.

No matter which debit card you have, you can track how much money you deposit and withdraw each month by looking at your monthly statements. Debit cards might not help your credit, but they can help you create a budget.

Debit cards themselves typically don’t have fees, but the linked checking account can come with a variety of fees, including: monthly account maintenance fees (if minimum balance requirements aren’t met), ATM fees, foreign transaction fees and overdraft fees.

If you want fee-free access to your money, consider using a no-fee checking account, such as the Capital One 360 Checking® Account, which has no monthly fees whatsoever.

Most debit cards are relatively basic, meaning you won’t earn rewards like a credit card. However, the Discover Cashback Debit Account provides 1% cash back on up to $3,000 in debit card purchases each month.

Discover Cashback Debit Account

Discover Bank is a Member FDIC.
  • Monthly maintenance fee


  • Minimum deposit to open


  • Minimum balance


  • Rewards

    1% cash back on up to $3,000 in debit card purchases each month

  • Free ATM network

    60,000+ Allpoint® and MoneyPass® ATMs

  • ATM fee reimbursement


  • Overdraft fee


  • Mobile check deposit


Terms apply.

Bottom line

Prepaid cards and debit cards can both be used to make purchases, but the best choice for you depends on what you want to get out of the card.

Prepaid cards can be a good option if you don't have a checking account. Parents who want to give their kids a limited amount of money can also opt for prepaid cards.

Debit cards can be a good choice for anyone with a checking account since they provide easy access to your money and don’t need to be reloaded.

However, if your goal is to build credit, neither of these cards are the right choice. You may want to consider opening a credit card that can help you establish and improve your credit score. The best credit cards offer rewards, intro 0% APR financing and other money-saving perks that make paying with a credit card worthwhile.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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