Prepaid Debit Card vs. Secured Credit Card: What’s the Difference?

If you’re looking for a credit card alternative that doesn’t draw funds directly out of your bank account and isn’t cash, you might consider a prepaid debit card or a secured credit card. Both options can suit those needs, but they work in different ways.

Let’s examine what prepaid debit cards and secured credit cards are, how they differ and how to choose between them.

What is a prepaid debit card?

A prepaid debit card is a type of reloadable debit card that lets you spend only the funds you’ve deposited onto it. Unlike a credit card, there’s no borrowing involved, and you typically can’t spend more than you’ve deposited. Once you spend all the funds on the card, you won’t be able to use it again until you reload money onto it.

You won’t have to undergo a credit check to qualify for a prepaid debit card, but it also won’t help you build credit.

What is a secured credit card? 

A secured credit card is a revolving credit product offered by a bank or lender. Secured credit cards require a security deposit, which is often equal to the credit limit. Once you pay the one-time deposit, you may use the card to borrow money for purchases, up to that limit, and make minimum monthly payments as you would with a traditional credit card. Similarly, secured credit cards may charge interest in certain situations, like when you carry a balance.

Prepaid debit card vs. secured credit card: key differences 

There are many important differences between prepaid debit cards and secured credit cards:

Prepaid debit card vs. secured credit card: fraud protection and dispute resolution 

Other key differences between these 2 options are the fraud protection rules they abide by and how dispute resolution works.

With prepaid debit cards, you generally aren’t responsible for any fraudulent charges if you report them immediately (waiting may result in more responsibility, up to the entire amount). Plus, your account must generally be credited the disputed amount if the investigation takes more than 10 business days.

With secured credit cards, however, you are entitled to the same liability protections as traditional credit cards. Those can limit your liability to $0 on unauthorized charges. Once you dispute charges, issues must be resolved within 90 days, during which time you have the right to withhold payment for the disputed amount.

Reading the card terms and conditions or agreement can help you understand how it works, whether it’s a prepaid debit card or secured credit card.

How to choose between a prepaid debit card and a secured credit card 

Both prepaid debit cards and secured credit cards require an upfront payment. However, looking at how they work may help you decide which option suits your needs.

For example, if you’re looking for a way to build credit through responsible card use or potentially earn points for purchases, a secured credit card may make more sense. Conversely, prepaid debit cards may suit those who want to avoid debt or interest, or who are looking for a simplified way to manage their budget.

Once you choose a card that works for you, be sure to review the requirements to keep your account in good standing. That way, you may avoid fees and instead focus on the potential benefits.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.