Choose the right card for your situation

Sometimes you might hear a card referred to as an “open-loop” or “closed-loop” card.

An open-loop prepaid card is a card with a network logo on it. Examples of networks are Visa, MasterCard, American Express, and Discover. These cards can be used at any location that accepts that card type. Most prepaid cards are open-loop cards. GPR prepaid cards, payroll cards, and some types of government benefit cards are open-loop, as are many other kinds of prepaid cards. Even some gift cards are open-loop.

A closed-loop prepaid card is a card you can only use at certain locations. For example, a closed loop card might be good only at a specific store or group of stores, or on your public transportation system. Most closed-loop cards do not have a network logo on them. Many gift cards are closed-loop cards.

Read the information about the card carefully to understand all of the fees. The CFPB’s prepaid rule requires prepaid card providers to give you information about fees before you choose a card. For cards you buy at the store, important information is included on the card as well as inside the card package. (Due to phase-in rules, it may take some time for new packaging to make it to stores, so you may not see all cards with this information immediately.) Consider how you plan to use the card and shop for the one that is best for your situation.

There are different types of fees on prepaid cards. Different prepaid cards charge different types and amounts of fees. Common fees include: 

• Monthly usage
  
• Transaction or per purchase fee
• In-network/out-of-network ATM withdrawal fee
• ATM balance inquiry fee
• Cash reload fee
• Customer service fee
• Inactivity fee
• Paper statement fee
• Decline fee
• Card-to-card transfer fee
• Bill payment fee
• Stop payment 
• Card replacement fee
• Additional card fee
• Foreign transaction fee
• Card cancellation fee

Not every card charges each type of fee. Some cards charge a monthly fee but not transaction fees. Other cards may skip the monthly fee but charge you transaction fees each time you use the card for certain types of transactions (such as purchases made in stores or online using the card).

Read more about types of prepaid card fees

If you have registered your prepaid card, or if your card is a payroll card or a certain type of government benefit card, you have certain error resolution rights that protect you from unauthorized transactions under federal law. Network-branded prepaid card providers usually give some additional protections for loss or theft, but you should check your card provider’s website or your cardholder agreement to find out the specifics.

Call your card issuer right away if your card or PIN is lost or stolen or if you see unauthorized charges.

A prepaid card may or may not be the right choice for you, depending on how you plan to use the card. You may want to consider alternatives, such as a bank account.

Prepaid cards vs. debit cards

A prepaid card is not linked to a bank checking account or to a credit union share draft account. Instead, you are spending money you placed in the prepaid card account in advance. This is sometimes called loading money onto the card.

Generally, you can’t spend more money than you have already loaded onto your prepaid card.  Overspending can occur with a checking account for some types of uses, and with a bank account debit card if you have “opted in” to your bank’s overdraft program. This means that your bank may charge you a fee for covering the cost of a purchase or ATM withdrawal that exceeds what you have in your account. Your bank will also require you to repay the overdraft.

Prepaid cards vs. credit cards

Prepaid cards are very different from credit cards.  This can be confusing because both types of cards may have a card network logo like Visa, MasterCard, American Express, or Discover on them. When you use a credit card, you are borrowing money. Generally, when you use a prepaid card, you are spending money you loaded onto the card in advance. However, if your prepaid card provider offers credit (including overdraft) on your prepaid card, it will need to comply with the rules for other credit cards.