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Debit, Credit and Prepaid Cards- The Differences
Many consumers use debit, credit and prepaid cards, often interchangeably, to purchase goods and services. However, these three types of cards are quite different. Consider the following when choosing which of these three cards would work best for you. 

Each Card works differently. If you use a credit card, you are borrowing money that must be paid back, in addition to interest, if you do not pay the balance in full by the due date. But, if you use a debit card, which is issued by your bank and linked to your checking or savings account, the money taken from the account is yours and you will never incur interest charges.

With prepaid cards, you are spending the money deposited onto them, and they usually aren't linked to your checking or savings accounts. Prepaid products include "general-purpose reloadable" cards, which display a network branch such as American Express, Discover, MasterCard, or Visa; gift cards for purchases at stores: and payroll cards for employer deposits of salary or government benefit payments. Be aware of the possibility of unanticipated fees and, with certain types of these cards, the potential for limited consumer protections against unauthorized transactions.

Watch for fees. You may be charged an overdraft fee if you use a debit card for a purchase but there aren't enough funds in the account and you have given your bank written permission to charge you for allowing the transaction to go through. Similarly, a credit card issuer may decline a transaction that puts you over your credit limit unless you have explicitly agreed to pay a fee to permit over-the-limit transactions. Prepaid cards are sometimes marketed with celebrity endorsements an promotional offers. These offers may seem attractive, but you may have to pay various fees on the card such as monthly fees, charges for loading funds onto the card, and fees for each transaction.

Your liability for an unauthorized transaction varies depending on the type of card. Federal law limits your losses to a maximum of $50 if a credit card is lost or stolen. For a debit card, you maximum liability under federal lawy is $50 if you notify your bank within two business days after learning of the loss or theft of your card. But, if you notify your bank after those first two days, under the law you could lose much more. Your liability for the fraudulent use of a prepaid card currently differs depending on the type of card. Federal law treats payroll cards the same as debit cards, but currently there are no federal consumer protections limiting your losses with other general-purpose, reloadable prepaid cards and store gift cards. The Consumer Financial Protection Bureau is considering  increasing the consumer protections for prepaid cards, but any action is likely to be a year or more away.

In addition, the funds you place on a prepaid card may or may not be covered by deposit insurance in the event of a bank failure, depending on how the account where the funds are held is set up and whether the bank or the card issuer's records at the time of the bank closing identify each cardholder's ownership interest.

To learn more about the tree types of payment cards, visit www.fdic.gov







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