Reloadable Debit Cards: How They Work

Reloadable debit cards allow you to add money to your card’s balance periodically, which you then can spend as needed. If you’re considering getting a reloadable debit card here are a few important things to know, including how they differ from regular bank debit cards.

What Is a Reloadable Debit Card?

A reloadable debit card, also referred to as a prepaid debit card, is a card that you can use to make purchases. They are sold at grocery stores, pharmacies, convenience stores, and other retailers. The key difference between this type of debit card and ones that are issued with bank accounts is where the money comes from.

When you open a checking account, your bank may provide a debit card that you can use to make purchases or withdraw cash at ATMs. When you use your debit card, the money comes right out of your checking account.

A reloadable debit card, on the other hand, is not linked to a bank account. So, unlike a bank debit card, which normally allows you to spend as much money as you have in the account, a reloadable card limits you to the money you have loaded onto it.

If you received an Economic Impact Payment as part of the CARES Act, it may have been issued in the form of a prepaid debit card. An estimated 4 million stimulus payments were issued to eligible taxpayers this way in 2020.

How Reloadable Debit Cards Work

Using a reloadable debit card is fairly simple. You buy the card, then follow the activation instructions that come with it. Once the card is activated, you can load money onto it. Depending on the card, you may be able to load money online, by phone, using direct deposit, or in-person where you bought it.

Once you’ve added money to the card, you can then use it much the same way you would a regular debit card. For instance, you could use a prepaid reloadable debit card to:

• Pay bills
• Shop online
• Get gas or buy groceries
• Pay for dinner out
• Cover ride-sharing or taxi fees

How to Choose a Reloadable Debit Card

Not all reloadable debit cards have exactly the same terms. Here are some of the differences to consider in choosing one:

Fees

While it’s possible to find free reloadable debit cards, others charge various fees for using them. For example, you might pay an activation fee, a reload fee, and/or a monthly service fee just to have the card. And if you’re using your card to get money from an ATM, there may be a separate fee for that, as well.

Reload options

Cards also vary in how you can reload them. Again, your options may include adding money by phone, online, direct deposit, or in person. If you’re adding money in person, you may be able to do so using cash. But if you’re adding money online, then you’ll need a bank account to transfer the money from unless you have the option to use mobile check deposit.

Load, purchase, and withdrawal limits

Reloadable debit cards can impose different limits on how much money you can add to your balance at one time, daily, or weekly. There may also be limits on how much you can spend or withdraw in a single transaction or per day. 

Acceptance

When considering a reloadable debit card, it’s important to check out where the card is accepted. You want to choose a card that can be used at the places you spend money most frequently. Many reloadable cards are issued in conjunction with the major credit and debit card networks, such as American Express, Mastercard, and Visa, so they’re widely accepted.

Deposit insurance

Like money in a bank or credit union account, some reloadable debit cards carry either Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance. The money you put on your card may be held in a pooled account at a financial institution, along with the money of many other cardholders. If that financial institution fails, deposit insurance can step in so you don’t lose any money. Reloadable debit card issuers are required to inform you about whether your money is insured before you buy their card. 

Other card features and benefits

Some prepaid debit cards provide additional benefits. The Bluebird Card from American Express, for example, comes with features such as emergency assistance and fraud protection. But that’s not the case with every card, so it’s helpful to look at what else you get before signing up.

If you’re shopping for a reloadable debit card, you may also want to consult Investopedia’s list of The 5 Best Prepaid Debit Cards of 2022.

Benefits of Using a Reloadable Debit Card

There are several reasons someone might choose to use a reloadable debit card. The first is the convenience. For example, reloadable debit cards make it easier for a person who is currently unbanked or underbanked to conduct everyday transactions without carrying around a lot of cash.

A prepaid card could also be a good fit for someone who needs help with overspending or learning how to keep track of their spending. For example, if you’re a parent, then a teen debit card could be a helpful teaching tool to get kids used to tracking their expenses. 

There are also no negative credit side effects with a prepaid debit card, since you aren’t taking on any debt. The flip side of that, however, is that unlike a credit card you can’t use a reloadable debit card (or debit cards generally) to build a positive credit history. 

Are Reloadable Debit Cards Safe to Use?

Regular debit cards linked to checking accounts come with certain protections in case your card is lost or stolen. Previously, prepaid debit cards did not enjoy those same protections, but new federal rules introduced in 2019 have changed that somewhat.

According to Consumer Financial Protection Bureau guidelines, reloadable debit cards are now treated more like checking account debit cards. The key changes included:

• More transparent fee disclosures.
• Expanded access to account information, including issuer-provided transaction summaries. 
• The right to dispute fraudulent charges on registered loadable debit card accounts.
• Fraud protection for unauthorized charges.

That last one is particularly important if you’re concerned about losing your card balance if the card is stolen or used to make fraudulent purchases. If your card is lost or stolen, the CFPB advises contacting your card issuer right away to let it know. Waiting too long report unauthorized charges could cause you to miss out on the fraud protections that came with your card and cost you money.