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Ask Creditnet: Are prepaid debit cards a good holiday gift for kids?

Dear Creditnet: Is there any difference between giving someone a prepaid debit card or a gift card this holiday? I've given gift cards before, but I'm curious if there's any benefit to giving my kids a prepaid debit. Thanks! - Tim L. from VT

Answer: The short answer is yes - a prepaid debit card is a good gift idea for your son or daughter this holiday. The long answer, however, is a little more complicated. Let's start with your first question...

How are gift cards and prepaid debit cards different?

For starters, prepaid debit cards are almost always accepted at any establishment that takes debit cards. Gift cards, on the other hand, are only accepted at their specific retailer. So prepaid debit cards can be used more broadly than the average gift card.

Prepaid debit cards can also be reloaded; most gift cards cannot. Also, prepaid debit cards have no expiration date, whereas some gift cards do expire after a period of inaction. (This could be changing soon, thanks to new legislation proposed in Washington.) Plus, prepaid debit cards like the American Express Prepaid Card (the prepaid debit card we recommend most) pass along their exceptional member services to prepaid debit card carriers; fraud protection, purchase protection and roadside assistance are all included with this prepaid debit card. Good luck finding that on any gift card.

Finally, you can actually retrieve money from an ATM with most prepaid debit cards. To my knowledge, there isn't a gift card on the market today with that option. (Though I'd love to be proven wrong.) So by and large, there are definitely some advantages to giving prepaid debit cards versus gift cards.

However, there are a couple of things to consider before slipping that prepaid debit card into a stocking. 

1.) Watch out for fees 

There are fees attached to prepaid debit cards, but for the most part they're similar to what you might see each month in your checking account. Not to harp on the American Express Prepaid Card, but the only fee attached to this card is a $2 ATM fee. No annual fees, no setup fees. Just sayin'.

2.) Don't mistake them for credit cards

Make no mistake - a prepaid debit card isn't a credit card. It won't help the recipient build credit, nor will they receive a credit line. However, they're great for teaching your kids about budgeting their money and using a card responsibly. So the gift of a prepaid debit card might actually have an effect on them long after the money on the card runs dry. 

So to sum it all up, prepaid debit cards are in fact different - and often make a better gift - than holiday gift cards. Thanks for the question, Tim!

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Jason Bushey's picture

Jason Bushey is the former Editor and Vice President of Creditnet. Jason is a Burlington, Vermont native who moved to sunny San Diego after earning a Bachelor's Degree in English and Political Science at the University of Vermont ('09). When he's not sharing his take on credit cards, administrating the Creditnet Forum or blogging about all things related to credit, you can probably find him cheering on the Green Bay Packers (He's an owner!) or running up and down the streets of SoCal.

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