Debit, Credit and Prepaid Cards: What’s the Difference?
These cards can impact your finances in various ways
Many consumers use debit, credit and prepaid cards, often interchangeably, to purchase goods and services. However, these three types of cards are quite different. The following information is provided by the Federal Deposit Insurance Corporation1:
Each card works differently. If you use a credit card, you are borrowing money that you must pay back, in addition to interest, if you do not pay the balance in full by the due date. But, if you use a debit card, which is issued by your bank and linked to your checking or savings account, the money taken from the account is yours and you will never incur interest charges.
With prepaid cards, you are spending the money deposited onto them, and they usually aren't linked to your checking or savings account. Prepaid products include "general-purpose reloadable" cards, which display a network brand such as American Express, Discover, MasterCard, or Visa; gift cards for purchases at stores; and payroll cards for employer deposits of salary or government benefit payments.2
Watch for fees. You may be charged an overdraft fee if you use a debit card for a purchase, but there aren't enough funds in the account and you have given your bank written permission to charge you for allowing the transaction to go through. "You can always revoke that authorization if you don't want to risk paying these fees, and future debit card transactions will be declined if you don't have the funds in your account," explained FDIC Consumer Affairs Specialist Heather St. Germain.
Similarly, a credit card issuer may decline a transaction that puts you over your credit limit unless you have explicitly agreed to pay a fee to permit over-the-limit transactions.
Your liability for an unauthorized transaction varies depending on the type of card. Federal law limits your losses to a maximum of $50 if a credit card is lost or stolen. For a debit card, your maximum liability under federal law is $50 if you notify your bank within two business days after learning of the loss or theft of your card. But, if you notify your bank after those first two days, under the law you could lose much more.
Your liability for the fraudulent use of a prepaid card currently differs depending on the type of card. Federal law treats payroll cards the same as debit cards, but currently there are no federal consumer protections limiting your losses with other general-purpose, reloadable prepaid cards and store gift cards. The Consumer Financial Protection Bureau is considering increasing the consumer protections for prepaid cards, but any action is likely to be a year or more away.
For all cards, industry practices may further limit your losses, so check with your card issuer.
Also take steps to guard any cards from thieves. Never provide any numbers in response to an unsolicited phone call, e-mail, text message or other communication you didn't originate. Immediately review your statement for unauthorized transactions.
2. Click here for information about OnCard, a reloadable, prepaid debit card with a built-in money management app,
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC