We Canadians have a strong affinity for our credit cards, but they’re not always the best fit for everyone. For those looking to limit spending, avoid accumulating debt, or lacking the credit score for a traditional credit card, a prepaid card can be a valuable alternative. Today, top-tier prepaid cards offer more than just payment capabilities; they may provide cash back, rewards, budgeting tools, and identity fraud protection.
Prepaid cards are often mistaken for secured credit cards, but they have distinct differences. While both serve similar purposes, prepaid cards do not involve borrowing money against a credit limit. Instead, users load funds onto the card and spend only what’s available. Here are some of Canada’s leading prepaid cards available today.
Prepaid cards function similarly to traditional debit and credit cards, allowing users to make online and in-person purchases, as well as cash withdrawals from ATMs. They serve as effective tools for budgeting, as users load them with a specific amount of money and cannot spend beyond that limit until the card is reloaded. For instance, if a cardholder loads $500 onto a prepaid card and spends $200 on a hotel reservation, they can only spend up to $300 more until the card needs reloading.
Here are some important points to note about prepaid cards:
They’re not debit cards: Prepaid cards, although sometimes called “prepaid debit cards,” are not linked to a checking account like debit cards. Instead, they operate independently with funds loaded onto them.
They’re not credit cards: Despite being referred to as “prepaid credit cards,” these cards do not function like credit cards. Transactions made with prepaid cards do not incur interest charges, nor are they reported to credit bureaus, meaning they do not impact the user’s credit score.
Fees may apply: While prepaid cards may not have annual fees, they still generate revenue for issuers through various fees such as loading fees or ATM withdrawal fees. It’s essential to review the card’s terms and conditions to understand potential charges fully.
A wide variety of Canadian financial institutions offer prepaid cards today, including some of the Big 5 banks, as well as a number of newer competitors. The easiest way to get a prepaid card is to apply for it online (check out our links above) and receive it by mail—this will likely be the only way to receive prepaid cards issued by smaller institutions. Bigger banks may issue their prepaid cards in person at a branch, and they may require you to have a bank account with them as a prerequisite to get their prepaid card.
Most (but not all) prepaid card issuers require cardholders to be at least the age of majority in their province. Requirements other than that are scant, which make prepaid cards a viable payment solution for those with a shaky credit history, or those with no credit history at all.
For individuals who prefer to avoid traditional banking but still need the convenience of cashless transactions, prepaid cards offer a suitable compromise. Even in a predominantly cashless society, prepaid cards provide a middle ground for those who wish to steer clear of credit and debit cards. They can also serve as effective tools for individuals seeking to set stricter spending limits, especially those who have struggled with managing credit card balances in the past.
However, if you aim to impose spending restrictions while also working to improve your credit score, opting for a secured credit card may be a more suitable choice.
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