How debit and prepaid cards differ

They are both forms of plastic money. They can both be used at retail outlets. They can both be swiped at an ATM machine to check the remaining balance. And that's all the similarities there are between debit and prepaid cards.

If you've been mixing the two up, here's explaining how they are different.

Getting a card

The first thing to note about prepaid cards is that you can buy them from the issuing bank whether or not you have an account with the bank.

For instance, if you want to get a Kotak Mahindra Best Compliments gift card, you don't need to have an account at Kotak Mahindra bank. That's certainly not true for debit cards. A debit card has to necessarily be linked to your bank account. A prepaid card is an over-the-counter product. It has an amount – which is left to your discretion – that is loaded at the time of purchase.

To buy a prepaid card, you need to fill out a form, provide proof of identification and address, hand over the cash or cheque and then you receive the card.

Proof is not required if you do have an account with the bank.For a debit card too, there is an application form.

But its processing and approval for issue can take as much as two weeks. The card is delivered only after approval.

Debit cards and prepaid cards have validity periods. But debit cards usually charge an annual fee, which is not the case with prepaid cards. There is a one-time fee when buying prepaid cards. Of course, re-issuing a card carries charges in both cases.The prepaid card can be swiped at any retail outlet up to the amount loaded onto the card.

Using the cards

There is a minimum and maximum limit on the amount that can be loaded on a single card.

A debit card can be swiped as long as there is sufficient balance in the bank account, no matter what the amount is. Banks simply impose upper limits on the amount spendable per day.

Even so, these daily limits are usually far higher than the entire amount that's allowed on a prepaid card.

Prepaid cards have various avatars – gift cards, meal cards, forex cards and cash cards – each with their own uses.

The forex card, for example, is in foreign currency and can only be used abroad. It does not levy transaction costs as international debit cards are wont to do. A gift card can be swiped anywhere but a meal card can be used only at food-and-beverage outlets.

Another noteworthy point is that most prepaid cards cannot be reloaded with fresh cash.

Once used up, the card has to be discarded. With a debit card, you can simply make a deposit in the linked account and continue to use it.

For example, HDFC Bank's FoodPlus card cannot be ‘topped up'. On the other hand, money can be added to Axis Bank's My Money card and it can also be used to draw money. Nor can prepaid cards be used at ATMs to withdraw cash as you would with debit cards.

You can stick any prepaid card into an ATM only to check the balance remaining.

Prepaid cards also come with net-banking log-ins to check balances. Changing of prepaid card PINs is also not allowed by some banks.And finally, banks have many offers such as discounts, cash back, gifts and loyalty points when shopping with debit cards.

Such a reward system is not available with prepaid cards.

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