- How prepaid cards work
- Types of prepaid cards
- Prepaid Mastercards
- Prepaid Visas
- Four pros
- Five cons
I might be going out on a limb here…but I don’t think credit cards are for everyone.
But we live in a society where pretty much everything is done by plastic.
If you want to rent a car, book or hotel, or purchase things online, you might find yourself in need of a credit card.
Luckily, there are prepaid credit card options out there for anyone who doesn’t trust themselves with (or can’t get approved for) a credit card.
How do prepaid credit cards work?
Prepaid credit cards – it’s all in the name.
Similar to gift cards, the balances on these cards are paid in advance before you’re able to use them for purchases.
With these prepaid balances, you’ll be able to make purchases as you would with a normal credit card – up to the amount of your balance.
Different types of prepaid credit cards
There are 2 main types of prepaid credit cards.
Store-bought prepaid credit cards
Store-bought prepaid credit cards are often the easiest to get your hands on.
These cards are one-time use cards that have set amounts on them – $25, $50, $100, etc.
They can be bought at most grocery stores and gas stations and make for great gift options.
Bank-issued prepaid credit cards
Bank-issued prepaid credit cards are a little harder to get.
In order to get one of these cards, you’ll need to “apply” through a bank or website.
The balance on these cards will depend on how much you want to put on them (up to a certain limit).
If you’re looking for a prepaid Mastercard, there are a few options on the market.
Here’s a quick glance at some of the options out there for you:
|Card name||Card type||Maximum balance||Fees|
|Vanilla Prepaid Mastercard||Store-bought, non-reloadable card||$200||$3.95–$6.95 activation fee|
|BMO Prepaid Travel Mastercard||Bank-issued, reloadable card||$10,000||$6.95 annual fee|
|Stack Card||Bank-issued, reloadable card||$20,000||$0|
Vanilla Prepaid Mastercard
One of the most common types of prepaid credit cards out there is the line of Vanilla Mastercard Gift Cards.
These cards can be purchased pretty much anywhere and come with the following activation fees:
|Gift card amount||Activation fees|
Although these cards come with expiry dates, the funds on the card will not expire. Simply contact customer service and they’ll put your remaining balance on a new card and mail it out to you.
If you make purchases in foreign currencies, you’ll be charged a 2.5% fee on those purchases.
BMO Prepaid Travel Mastercard
If you’re looking for a bank-issued prepaid credit card and you like shopping at Costco, the BMO Prepaid Travel Mastercard could be a good option.
Although it comes with an annual fee of $6.95, it can have a balance between $100–$10,000 depending on how much money you want to put on it.
The BMO Prepaid Travel Mastercard is the only prepaid Mastercards offered by one of the Big 5 banks, which is nice if you’re looking for the security of a well-established bank behind you and your prepaid Mastercard.
Like the Vanilla cards above, you’ll be charged an additional 2.5% on foreign currency purchases.
You can apply online, which is nice, and BMO says you’ll get your response in under 60 seconds.
The Stack Card is one of the newer prepaid credit cards taking this space by storm.
Backed by People’s Trust Company, this card has some fun features to help it stand out:
- rewards and savings at select partners,
- mobile pay through Samsung Pay and Fitbit Pay,
- free stack-to-stack transfers,
- financial tools, tips, and banking app, and
- no fees – not even foreign exchange fees.
The Stack Card even gives you the ability to “supercharge” your savings by rounding up all your purchases to the nearest $1, $2, $5, or $10, putting the extra money towards your savings goals.
Stack also offers a pretty cool referral program that earns you $5 for every friend you refer.
Prepaid Visa cards
There are quite a few more Prepaid Visa cards on the market:
|Card name||Card type||Maximum balance||Fees|
|Vanilla Prepaid Visa||Store-bought, non-reloadable card||$250||$3.95–$6.95 activation fee|
|Scotiabank Prepaid Reloadable Visa||Bank-issued, reloadable card||$2,400||$10 annual fee|
|CIBC Smart Prepaid Visa Card||Bank-issued, reloadable card||$10,000||$0|
|KOHO||Bank-issued, reloadable card||$20,000||$0|
|MogoCard||Bank-issued, reloadable card||$10,000||$0|
Vanilla Prepaid Visa
Vanilla Prepaid Visas are the same as the prepaid Vanilla Mastercard.
They can be purchased in preset amounts and come with activation fees ranging from $4 to $7.
They can be used online like any other prepaid credit card, but there are some downsides:
- they cannot be used for recurring bills,
- they cannot be used at ATMs or refunded for cash back,
- if your card is lost or stolen, the only way you can get a replacement is if you have your card number written down or memorized, and
- with low maximum balances, you’ll need to purchase more than one if you’re making a big purchase, which also means paying more than one activation fee.
Scotiabank Prepaid Reloadable Visa card
Scotiabank isn’t the only big bank that has a prepaid Visa card on the market, but it is the only one that gives rewards on all your purchases – 1 SCENE point for every $5 spent.
SCENE points are great for entertainment lovers and will give you free movie tickets and movie theatre concessions, plus discounts at participating restaurants.
You’ll need to visit a local branch to apply, but this card will give you fun rewards and all the security of a credit card, with none of the worries.
This card has an annual fee of $10.
CIBC Smart Prepaid Visa Card
CIBC is the last of the 5 Big Banks that offer a prepaid credit card.
Much like the Scotiabank Prepaid Reloadable Visa card, you’ll need to head to your closest CIBC location if you want to purchase one of these cards.
And although the CIBC prepaid Visa allows for a much higher balance, it doesn’t give cardholders any rewards.
But if you’re looking for a card with no annual fee, this might be your better option.
The KOHO card is another card that’s backed by the People’s Trust Company.
Just like the Stack Card, the KOHO has no annual fee and charges no foreign exchange fees either, which is a great 2.5% savings if you make a lot of foreign purchases.
Also like Stack, KOHO allows you to round up your purchases to the nearest $1, $2, $5, or $10, and have your difference deposited into your account.
KOHO sets itself apart by giving you an instant 0.5% back on all of your purchases and by upping their referral program to $10 for every friend you refer (who goes on to sign up and makes a purchase).
KOHO also allows you to have a joint account with someone to seamlessly share your finances.
If you’re looking for bigger rewards, the MogoCard will give you up to 3% back on your purchases:
- 3% on all foreign currency purchases and
- 1.5% unlimited cash back on all Canadian dollar purchases.
The MogoCard also comes with an app that will give you real-time updates and insight on your spending.
And it’s the only card that gives free access to your credit score as well, helping you stay on top of your finances and credit even more.
Although the MogoCard is a “no fee” card, if you don’t use the card for 91 days, you’ll be charged an inactivity fee of $2 per month.
Please note: Mogo is a company that also offers very high interest loans. By using one of their “free” products, you may receive marketing messages pertaining to those. If an offer catches your eye, be sure to read the fine print before signing up.
Quantities are limited.
4 reasons to get a prepaid Visa or Mastercard
If adding a legit credit card to your wallet isn’t something you want to do, there are many benefits to getting a prepaid credit card.
1. They can be used in the same manner as credit cards
These cards will give you the ability to shop online, rent cars, and book hotels (although, not all hotels will accept prepaid cards – so be sure to check ahead of time).
Some of the above cards will even allow you to earn rewards, save money faster, and control your finances better.
2. You don’t need to have good credit
Possibly the best thing about prepaid credit cards is that they’re not reliant on credit scores.
You don’t need to worry about a hard credit inquiry or your credit utilization, and you don’t need to worry about missed payments ruining your credit history.
As an added bonus, anyone and everyone can get approved.
So, whether you’ve had credit problems in the past, you’re new to the country, or you’re young and still trying to build up credit, you’ll be able to score one of these cards.
3. You don’t need to worry about interest charges or annual fees
Traditional credit cards come with fees and charges that you always need to be aware of – in fact, that’s one of the main ways credit card companies make money.
But with prepaid credit cards you’ll never have to pay interest, and although some do come with annual fees, they are often significantly less than some credit card fees.
4. Prepaid cards are a set amount and don’t encourage overspending
With prepaid cards, you don’t need to worry about spending money you don’t have. So, if you’ve gotten into trouble in the past, or don’t trust yourself with a traditional credit card, you’ll avoid falling into the trap.
5 reasons not to get a prepaid Visa or Mastercard
There are also a few reasons you might want to consider another alternative.
1. They don’t help build your credit
For some people, the fact that prepaid cards aren’t attached to credit score is a great thing…for others, however, it’s a downside.
If you’re trying to get your credit score back on track, you might want to consider something that will help you build your credit.
2. You could be losing out on interest
Although having a prepaid credit card with a $10,000 balance might come in handy in times of emergency, any money that you put on a prepaid credit card won’t earn any interest.
You’d be much better off investing that money or even putting it into a TFSA, only putting money on your prepaid credit card as you need it.
3. Most won’t give you rewards on all your purchases
There might be a few prepaid credit cards that give you rewards, but these rewards pale in comparison to some of the best credit card rewards programs out there.
So, if you’re able to get a legit credit card and use it responsibly, then you’ll likely be much better off.
4. Store-bought cards can’t be used for recurring bills
Finally, if you’re looking for a credit card that you can put your Netflix subscription on, a store-bought card isn’t the way to go.
Although store-bought cards can be used in many of the same ways as traditional credit cards, this is one purchase you won’t be able to make with them.
5. You’ll miss out on insurance coverage
Although some of the above prepaid cards come with basic insurance, even some no fee credit cards come with a better insurance package that you could be missing out on.
- Extended Warranty
- Purchase Protection
- Travel Accident
- Trip Interruption
- Rental Car Theft & Damage
- Rental Car Accident
- Rental Car Personal Effects
If having peace of mind while you travel and shop is a priority for you, you might want to consider going with a real credit card.
Prepaid credit card alternatives
Still unsure if a prepaid credit card is the best way to go for you? Thankfully there are a few other options.
Secured credit cards
If you don’t have the best credit score and are worried about getting approved for a real credit card, a secured credit card is a great option.
Unlike prepaid credit cards that require you to add money to your account anytime you want to make a purchase, a secured credit card only needs one security payment. Then you’ll have a real card, making payments after you make your purchases.
The best part is that secured credit cards do report to credit bureaus. So, if you use a secured card and pay your balance off in time for a few months, you should see a positive effect on your credit score.
Almost everyone is approved, and your balance is based on what you provide as your security deposit – which can be an amount from $500 to $10,000.
This secured credit card has no annual fee and even comes with 90 days of purchase protection, giving you even more peace of mind.
Find out more details here:
No fee credit cards
Finally, if you’re worried about the fees that come with a credit card, you could consider a no fee credit card.
- no annual fee,
- no foreign transaction fees, and
- gives you 1% cash back on all your purchases – with no limits.
On top of that, this card will give you free roadside assistance (saving you even more fees if you’re currently paying for a roadside assistance program).
Like the secured card above, you’ll be covered with 90 days of purchase protection, and rental car theft and damage insurance. And as long as you use it properly, it should have a positive effect on your credit score.
Get all the details here:
We’d love to hear from you
Do you have a favourite prepaid credit card?
There are a lot of options out there…
With different apps, rewards, and features available, it pays to do your homework.