Our pick for a secured credit card: Citi® Secured Mastercard®
- No annual fee: A rare feature for a secured card
- Build credit with reporting to all 3 major credit bureaus
- Deposit between $200 - $2,500
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Our pick for a secured credit card: Citi® Secured Mastercard®
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 can be used as a stepping stone to an unsecured credit card. Here’s everything you need to know about secured credit cards and prepaid debit cards.
While secured credit cards and prepaid debit cards may seem very similar in theory, there are actually several major differences. Here’s a quick rundown of a few of the main features that separate the two:
|Secured credit cards||Prepaid debit cards|
|Deposit is collateral and your spending limit||Deposit is your spending limit|
|Annual, transactional and maintenance fees||Activation, withdrawal and deposit fees|
|Interest charges on monthly balance||Monthly service charges|
|Build credit as you use the card||Doesn’t build credit|
|Funding through bank account||Multiple funding options|
|Can be used almost anywhere||Limited online use and access|
|Interest and fees on cash advances||ATM balance inquiry fees|
|Rewards programs and card benefits||Guaranteed approval|
|Only available through financial institutions||No bank account required|
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 often serves as your credit limit.
Secured credit cards work similarly to unsecured credit cards. The primary difference is you’ll need to provide a security deposit in order to obtain a secured card.
Unsecured credit card issuers rely on your credit history as assurance that you’ll pay off your purchases. With secured cards, however, your deposit acts as collateral. Secured credit cards are easier to be approved for — especially for those with limited or poor credit.
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.
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.
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:
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.
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. However, you’ll want to look for a low-fee prepaid debit card in order to cut back on the associated fees.
If you’re looking to improve your credit, secured credit cards are often 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. Learn more about how credit and debit cards are different, or explore secured credit cards and prepaid debit card options, then apply for the card that’s right for you.
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