Secured credit cards vs. prepaid debit cards | finder.com

Compare secured credit cards vs. prepaid debit cards

We know that everyone's situation is unique and we aim to help you find the right product for you. We may receive compensation when you visit our partners' sites or are approved for their products. You can read more about how we maintain editorial independence and how we make money here.

Both provide the same freedom as a credit card, but without the risk of falling into debt.

Credit cards are one of the best ways to build credit, and when used responsibly, can provide flexibility in your path to financial stability. While there are all sorts of benefits that come with owning a credit card, there are also a handful of downsides. Whether you’re having trouble getting approved or just want to avoid the liability, there are a number of other financial products that serve a similar purpose.

Secured credit cards and prepaid debit cards are two of the most popular and available alternatives to credit cards. Both provide the same freedom as a credit card, but without the risk of falling into debt. They can be used to build credit, pay for everyday expenses or even as a stepping stone to an unsecured credit card. Here’s everything you need to know about secured credit cards and prepaid debit cards.

What is a secured credit card?

Secured credit cards offer the advantages of an unsecured credit card even if you have poor credit. The main difference between secured and unsecured credit cards is that secured cards require a deposit that serves as your credit limit.

Unsecured credit card issuers rely on your credit history as assurance that you’ll pay off your purchases, whereas with secured cards, your deposit acts as collateral. Secured credit cards are easier to be approved for — especially for those with limited or poor credit.

See our list of the top secured cards.

How do secured credit cards work?

You can use a secured credit cards anywhere that accepts unsecured cards — online or in person — and you’ll receive a monthly statement with your balance. You’ll see a required minimum payment every month, but you’ll pay interest on any outstanding balance. Making timely payments and staying within your credit limit will help you build up your credit score over time.

When are secured cards better than prepaid debit cards?

Secured credit cards allow you to use the lender’s money on credit with the promise to pay it back later. The greatest advantage secured cards have over prepaid cards is that it helps you build your credit score as you use it.

Secured credit cards also offer more flexibility in your spending, and some offer rewards programs, benefits and other perks that aren’t available on prepaid debit cards.

Pros and cons of secured credit cards

Pros

  • High approval rates
  • Build credit with no risk of debt
  • Can be used anywhere
  • Refundable deposit that may earn interest
  • Flexibility in spending

Cons

  • Upfront deposit
  • Better cards may have lower fees
  • Low credit limits
  • Lack of rewards programs
  • Higher APR
  • Approval is not guaranteed

Best secured credit cards

Name US Annual Fee Min credit limit US APR for Purchases ( Purchase Call to action
OpenSky® Secured Visa® Credit Card $35 $200 18.64% variable Go to site More info
Discover it® Secured Credit Card $0 $200 24.74% variable More info
Secured Mastercard® from Capital One® $0 $200 24.99% variable More info
DCU Visa® Platinum Secured Credit Card $0 $5 13.25% variable More info
SDFCU Savings Secured Visa Platinum Card $0 $250 13.49% variable More info

What is a prepaid debit card?

Prepaid debit cards are not linked to your bank account. Instead, you load money onto the card and once it runs out, you can either load more or get a new card. There are no credit limits, monthly bills or interest charges like a credit card, but you’ll still be able to use it anywhere you’d use a standard debit card.

How do prepaid debit cards work?

Unlike standard debit cards and credit cards, you won’t need to go through a financial institution to get a prepaid debit card. Prepaid debit cards can be purchased at grocery stores, pharmacies, corner stores and a handful of other locations, making them much easier to get. Once you’ve obtained a card, there are a number of ways you can load money onto it:

  • Through a financial institution via cash, check or transfer.
  • Direct-deposit paychecks onto your card.
  • Online: PayPal, Interac or bank transfer.
  • Reload it at a retail store like Walmart or Walgreens.
  • Buy a reload card such as Vanilla, Green Dot or MoneyPak.

Once your card is loaded, you can use it to make purchases anywhere you’d use a normal debit card. This includes goods and services at retail locations and even online bill payment for some cards.

Pros and cons of prepaid debit cards

Pros

  • Controlled spending
  • No overdraft fees
  • No credit check required
  • No bank account needed
  • No interest charges
  • Keeps your money safe

Cons

  • Doesn’t build credit
  • No rewards programs or benefits
  • Undisclosed service charges
  • Activation, withdrawal and deposit fees
  • Limited online purchases
  • Less security if lost or stolen

When are prepaid debit cards better than secured credit cards?

Prepaid debit cards and secured credit cards are very similar in that they both provide a means to manage your spending. While secured credit cards offer more flexibility in your spending, they may promote bad habits since you aren’t actually spending your own money. Prepaid debit cards encourage responsible spending and budgeting, and offer a secure way to manage your cash without a bank account.

Best prepaid debit cards

Rates last updated July 22nd, 2018
Name Product Product Description Monthly Service Fee ATM Withdrawal Fee ATM Balance Inquiry Fee
READYdebit Select Visa Prepaid Card
The READYdebit Visa Select Prepaid Card is issued by MetaBank, and you can use it anywhere that accepts Visa.
$9.95
$2.50
$1.50
READYdebit Control Visa Prepaid Card
The READYdebit Visa Control Prepaid Card lets you keep track of your purchases, and stick to a budget.
$0
$2.50
$1.50
Netspend® Visa® Prepaid Card
With Netspend®, you get a convenient way to manage your money on a prepaid card that is packed with features.
$2.50
$0.50
Pink Netspend® Visa® Prepaid Card
Trusted by more than 7 million people.
$2.50
$0.50
AccountNow® Gold Visa® Prepaid Card
The AccountNow Gold Visa Prepaid Card is a debit card that allows cardholders the convenience of direct deposit without having to open a checking account.
$9.95
$2.50
$1.50

Compare up to 4 providers

Secured credit cards vs. prepaid debit cards

While secured credit cards and prepaid debit cards may seem very similar in theory, there are actually several major differences. Here are a few of the main features that separate the two:

Secured credit cardsPrepaid debit cards
Deposit is collateral and your spending limitDeposit is your spending limit
Annual, transactional and maintenance feesActivation, withdrawal and deposit fees
Interest charges on monthly balanceMonthly service charges
Build credit as you use the cardDoesn’t build credit
Funding through bank accountMultiple funding options
Can be used almost anywhereLimited online use and access
Interest and fees on cash advancesATM balance inquiry fees
Rewards programs and card benefitsGuaranteed approval
Only available through financial institutionsNo bank account required

Bottom line

There are a handful of financial products that can help you better control your spending and budgeting, but secured credit cards and prepaid debit cards are among the best. If you’re looking to improve your credit, secured credit cards are the best choice. However, if you’re just looking for a way to manage your finances, prepaid debit cards offer most of the benefits of a standard debit card without a bank account.

As with any major financial decision, you should always weigh your options to find a product that best suits your needs. Explore secured credit card or prepaid debit card options, then apply for the card that’s right for you.

Peter Carleton

Peter Carleton is a writer at finder.com who specializes in credit cards, life insurance, mortgages and more. In his free time, you can find him cooking, writing or honing his skills in WordPress development.

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.

US Credit Card Offers

Important Information*
Deserve® Classic Card
Deserve® Classic Card

APR

24.49
variable

Annual fee

0 For the first year
More info
Luxury Card Mastercard® Gold Card™
Luxury Card Mastercard® Gold Card™

APR

16.74
variable

Annual fee

995 For the first year
More info
First Access Visa Card®
First Access Visa Card®

APR

29.99
variable

Annual fee

75 For the first year
More info
Indigo® Platinum Mastercard® Credit Card
Indigo® Platinum Mastercard® Credit Card

APR

23.9
variable

Annual fee

75 For the first year
More info
Go to site