One question we get a lot is how safe is money deposited onto a prepaid credit card. It’s common knowledge that money deposited at a bank is FDIC insured up to at least $100,000 (this amount has been increased to $250,000 temporarily). But how safe is the money you add to a prepaid credit card?
Although a prepaid credit card does not require a bank account, prepaid cards are issued by FDIC insured banks. For example, the popular AccountNow Visa and MasterCard are issued by MetaBank, a member of FDIC. According to the AccountNow website, “funds are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).” As another example, READYdebit is also FDIC insured.
There was at one time some doubt about whether funds held at a bank as part of a prepaid debit card were covered by FDIC insurance. In a ruling by the FDIC in November 2008, however, the FDIC decided that money will be “deposits” to the extent that the funds have been placed at an insured depository institution.” Classifying money as “deposits” means that the funds will be insured (up to the FDIC insurance limit). Under the ruling, the FDIC reached the following conclusion:
All funds underlying stored value products will be treated as ‘deposits’ to the extent that the funds have been placed at an insured depository institution. As a result, all such funds will be subject to assessments. Also, all such funds will be insured up to the FDIC insurance limit.”
The ruling was a victory for consumer advocacy groups who had been pushing for clarity on the issue. It was particularly important for employers who give their employees prepaid cards for payroll. But it was also an important ruling for all consumers looking to take advantage of store-valued debit and credit cards.
It is important when compare debit cards to confirm that your funds will be held in an FDIC-insured account. Keep in mind that prepaid cards do not pay interest on the money. Much like most checking accounts, while the money is safe, it’s not the place to hold long-term savings.
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I honestly never wondered whether or not a prepaid card was insured or not. I rarely use them. In fact, I only use them when someone gives me one as a gift (which means the value is usually below $100). Though, I am glad to know that prepaid cards held by a bank are insured which will certainly affect my buying preferences in the future. Thanks for the post.