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Some people choose to pay their bills with a prepaid card, such as a gift card or a reloadable prepaid debit card. This can help with budgeting, since you can set a specific amount of money that goes on your prepaid card. In addition, you don’t have to worry about overdrawing your bank account and can avoid racking up high-interest credit card debt. However, these cards can come with fees and other downsides.

Here, learn how this financial product works so you can decide if paying bills with a prepaid card is right for you.

Understanding Prepaid Cards

There are a few different types of prepaid cards, and while they share some similarities, it’s important to understand how they differ.

What Are Prepaid Cards?

Prepaid cards are similar to debit cards, but rather than drawing on your checking account, they pull from funds loaded onto the card. These cards are typically issued by a major processing network without a credit check.

The fact that these cards often use Visa, Mastercard, or American Express processing networks and have the company’s logo on them is why you may sometimes hear them referred to as “prepaid credit cards,” but they don’t offer a line of credit or potentially accrue interest as standard credit cards do. Rather, using a prepaid card usually means that you can use your card anywhere that the processing network on your card is accepted, up to the balance available on the card.

How Prepaid Cards Work

There are a few different kinds of prepaid cards, and they work in slightly different ways.

•   Prepaid gift card: You can buy these prepaid gift cards online and in person at many major retailers. Prepaid gift cards come in different amounts, and usually have a small activation fee that you’ll have to pay in addition to the face value of the gift card. Once you purchase and activate your prepaid gift card, you can use it anywhere that the processing network (Visa, Mastercard, etc.) is accepted. Once you have used up the value of the gift card, it is considered empty and you can’t add funds to it.

•   Prepaid reloadable card: With a prepaid reloadable card (sometimes referred to as a reloadable or prepaid debit card), you can add money to your card at any time, either through a cash deposit, direct deposit of a paycheck or government check, a tax refund, or other ways. You may also be able to reload it by transferring funds from an online bank account or by adding cash at some banks, ATMs, or retail locations. Many prepaid reloadable cards also allow you to pay bills online in addition to using your prepaid card online or at a retailer.

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Benefits of Paying Bills With a Prepaid Card

There are pros and cons of prepaid debit cards. Here’s a look at some of the benefits of paying bills with a prepaid card.

Budgeting and Spending Control

One of the best reasons to use a prepaid card to pay your bills is the ability to set limits which can help as you work to make a budget and stick to it. You control the amount of money that is on a prepaid card, which means that you can control how much you spend. Prepaid cards could also be part of a plan to avoid high-interest credit card debt because you are only spending the cash amount on the card vs. drawing against a line of credit.

Tip: One way to budget by using prepaid cards is to have several different prepaid cards, one for each category in your budget. That way you can more easily limit how much you spend in any one category.

No Credit Check or Approval Required

Unlike a traditional credit card, there is no credit check or approval required to buy a prepaid debit card. You simply buy the card, pay any activation fee that is required, and the card is available for use. That can make paying bills with a prepaid card an attractive option for people with no credit or those with poor credit.

It’s worth noting that activity on these prepaid debit cards isn’t reported to the credit bureaus, and you therefore cannot build credit with prepaid debit cards. However, they could help you avoid negative situations, such as increasing your credit utilization ratio, which might harm your score. (Secured credit cards, however, which require a down payment as collateral to borrow against, may help build credit.)

Avoiding Overdraft Fees

Another benefit of paying bills with a prepaid card is that you can avoid overdraft fees. Unlike a debit or credit card, with a prepaid card, the amount of money on your card is fixed. And if you try to make a purchase for an amount that is higher than is on your card, your purchase will likely not be approved.

While that can be frustrating, it does mean that you can avoid overdraft fees which can occur if, say, you have set up utility bill autopayments but don’t have enough cash to cover the amount one month. These fees can be as high as $35 or $40 a pop, so it can make good financial sense to dodge them.

Potential Drawbacks of Using Prepaid Cards

While there are benefits to paying your bills with prepaid cards, there are also some possible drawbacks as well.

Fees and Charges

While you can avoid overdraft fees by using prepaid cards, there are some fees and charges that you might incur. Many prepaid cards charge an activation fee that you pay when you purchase a card. These are often between $1 and $10. Also, some cards also charge an inactivity fee, if you don’t use the card in a certain time period, and/or a monthly maintenance fee. Make sure you understand any fees and charges on your prepaid card before buying and using one.

Limited Protections and Fraud Liability

Another potential downside of using a prepaid card as compared to a credit card is that credit cards typically have better purchase and fraud protection. When you use a prepaid card, you may be giving up some of those protections.

It’s worth knowing that many prepaid debit cards, however, now offer protections similar to those of standard debit cards linked to a checking account. Check the card’s terms to see what coverage you may have. You may need to register the card to access these benefits.

You also need to be aware that there is not always a way to register a prepaid gift card or create an account. So if you lose your prepaid gift card, there may not be a way to get that money back. Guard your prepaid cards like you would cash.

Acceptance Issues

Most gift cards or prepaid debit cards are issued by a major processing network such as Mastercard or Visa. That means that those cards are usually accepted anywhere that network is accepted. However, you may find some situations where a store or online retailer may not accept a prepaid gift card as valid payment for some types of purchases. (For instance, if a merchant has had issues with declined transactions using this type of card, they may not accept them.) Consider checking with your retailer to see if your card will be accepted before planning on making a major or time-sensitive purchase with a prepaid card.

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Setting Up Bill Payments With a Prepaid Card

You can use some prepaid debit or prepaid credit cards to set up your bill payments. For example, your prepaid card typically will come with a 16-digit card number, similar to a debit or credit card. Simply use that number when you are setting up your bill payments. You’ll just want to make sure that you have enough money on your card to pay your bill. This is especially true if you are using a reloadable card for recurring payments.

Managing Your Finances With a Prepaid Card

It is possible to pay your bills and manage your finances using prepaid cards. This can be a good option for someone who doesn’t have a checking account or doesn’t want or can’t use credit cards. If you do decide to manage all (or most) of your finances using prepaid cards, you’ll likely want to get a reloadable prepaid card. That way you don’t have to continually buy new cards as your funds run out — instead, you can just add funds onto your existing reloadable card.

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The Takeaway

Prepaid cards are typically issued by one of the major card processing networks such as American Express, Mastercard, and Visa. You can either buy prepaid gift cards, which generally are loaded with a set amount and can’t be reloaded, or reloadable prepaid debit cards. Reloadable cards allow you to add additional funds to the card as needed. There are both advantages and disadvantages to using prepaid cards to pay bills, so make sure you understand both the pros and cons before deciding to pay bills with a prepaid card.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can I pay any type of bill with a prepaid card?

Most prepaid cards are processed by a card network such as Visa or Mastercard. So you can typically use your prepaid card anywhere that network is accepted. However, some bills are not payable with this kind of card, so you may have to make other arrangements. Check with the intended payee to see what options may be available.

Are prepaid card transactions secure and safe?

Prepaid card transactions are generally processed by the card processing network that is indicated on the card itself (usually Visa, Mastercard, or American Express). As such, these transactions are as safe as any other transactions that are on the same network. Just keep in mind that these cards may not have much protection if they are lost or stolen, so guard them carefully.

What happens if I run out of funds on my prepaid card?

What happens if you run out of funds on your prepaid card depends on what type of prepaid card that you have. Many prepaid cards work more like gift cards in that they have a certain amount of money loaded onto them, and when that money runs out, the card has no value. However, some prepaid cards are reloadable, meaning that you can add additional funds onto the card and continue to use it.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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