How prepaid cards ensure that you don't go overboard on your expenses

They're also safer than credit and debit cards, and online transactions; just make sure you don't overload your prepaid card with too much money

Online spending has been growing rapidly since the prolonged Covid-19 induced lockdowns in the country. However, excessive dependence on credit cards can lead to going overboard with spending. One way to avoid overspending is to switch to prepaid cards, which are issued by banks and fintech firms. 

The oldest form of the prepaid cards many salaried individuals are familiar with, are the ‘Meal Cards’ or coupons to buy food items or groceries and pay restaurant bills. New generation prepaid cards are issued without such restriction but subject to rules and regulations by banks such as ICICI Bank, Axis Bank, HDFC Bank and fintech firms such as Paynearby and Zaggle offer prepaid cards.

Barriers on spending

Unlike credit and debit cards, prepaid cards have neither credit limit nor linkage with any saving bank account. They need to be loaded with a specific amount through your bank account and can be used to pay at a merchant point-of-sale or to shop online. If ATM-enabled, these cards then can be used to withdraw cash from ATMs. Since you cannot spend more than the money loaded on to those cards, there is no risk of overspending as in the case of credit cards. Prepaid cards are a wonderful tool to control spending behaviour. “A prepaid card can act as an ultimate budget tool. Prepaid cards certainly help you track your expenses and encourage discipline in your financial life. For example: you can buy a Prepaid Forex Card for your next vacation abroad and ensure that you stay within your means while swiping the card overseas,” Raj Khosla, Founder and MD, MyMoneyMantra.comsaid.

Adhil Shetty, CEO, BankBazaar says prepaid cards can help inculcate fiscal responsibility. “Prepaid cards can be used in lieu of cash gifts, especially for larger amounts, as they are safer and easier to carry and have long validity periods. It a useful first card for teens beginning to learn fiscal responsibility as it allows them the independence to make their own spends while ensuring that they do not overshoot the budget,” he adds.

The safety factor

Often individuals are duped while transacting online. With high credit limits on credit cards or large balances in bank accounts, the magnitude of losses in case of such frauds can be big. But in prepaid cards the maximum loss is limited to the extent of money outstanding. This ensures that you can transact without anxiety on not so familiar websites or at merchants POS. “Prepaid cards are 100 per cent safe and largely reduce instances of digital fraud as none of your sensitive details is linked,” says Khosla.

Like any other credit or debit card, these prepaid cards come with a personal identification number (PIN) and one-time password for each online transaction. Some also allow you to login your account on the apps or website of the issuer and disable them for online transactions. This facility works best when you have balance in your card but do not intend to use it for a specific period. You can always enable online transactions later when you want to.

Getting the card

Issuers ask for identification documents and a signed form when you ask for one such card. These cards are issued at a small fee, typically ranging between Rs 50 to Rs 100 plus taxes. In some cases, the fee can be waived by the issuer. The issuer can impose certain other charges such as fee for replacement of card or redemption of card. Some issuers also charge you for loading the card.

“Watch out for fees. While you don’t pay interest on a prepaid card as you do with a credit card, there are a number of fees including reload fees and cash withdrawal fees, especially for out-of-network ATM withdrawals, charges for overseas use, etc. So look around, compare different cards from different issuers, and read the terms and conditions before you actually apply for one. Depending on the card, you may be charged a Card Issuance Fee, Annual or Monthly Usage Fees, Cash Withdrawal Fee, Balance Enquiry Fee, Reload Fee, etc,” Shetty pointed out.

Beware of downside

Balances on prepaid cards do not earn any interest. Hence you should not be loading the card with too much money. You can keep loading it from time to time with money equal to maximum two to three months of expenses. Also, prepaid cards come with a validity period within which you have to spend the money loaded on to them. If you fail to spend the money before the expiry of the card, you have to write to the issuer and recover the money following due process, which can be cumbersome.

“Prepaid cards can be excellent wallet buddies. However, before getting a prepaid card do collect complete information about associated charges as mentioned above and lastly, do compare the offering between various issuers and select the prepaid card most suitable for your own needs,” Khosla advises.

Table: Features of select prepaid cards

Card	Issuer	Charges	Max amount	ATM use	Validity
ICICI Saral Money Prepaid Card	ICICI Bank	No withdrawal or deposit fee	Rs 50,000	Available	.
Corporate Gift Card	Yes Bank	Issuance fee: Rs 100	Rs 10,000	Not available	1 year
Millennia Prepaid Card	HDFC Bank	Issuance Fees: Rs 499; Annual Fees: Rs 499; ATM cash withdrawal Fees: Rs 20 / 1.85%	Rs 1,00,000	Available	5 years
State Bank eZ-Pay Card	SBI	Issuance fee: Rs 100; Reload fee: Rs 10	Rs 1,00,000	Available	10 years
Baroda Reloadable Card

Bank of Baroda Issuance fee: Rs 100; Reload fee: Nil;  ATM Withdrawal Fee: Rs 22 

Rs 50,000

Available

3 years