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Prepaid Mastercard and Visa Credit Card Comparison Canada

Just the other day, I received a surprise gift in the mail – a $200 prepaid Vanilla Prepaid Mastercard.  There are not a lot of things that perk up my day more than receiving money in the mail, so as you can imagine, receiving a $200 shopping card was a pleasant way to start my day.

I’ve heard of these prepaid credit cards before, but I’ve never used one.  Upon examining the package, it clearly indicates that there is a $6.95 activation fee.  My first reaction was one of slight agitation as it eats into the balance (I dislike fees).  However, upon further investigation, I soon realized that it’s person who purchases the card that’s responsible for the activation fee when purchasing the gift.

Prepaid credit cards are a pretty smart revenue stream for credit card companies.  They get the initial activation fee for every card along with their regular 2% – 3% merchant fee for every transaction.  In addition, if the user doesn’t spend the money fast enough, they start charging a monthly fee.

The Upside

Not only is it great for credit card companies, it’s also great for the receiver of the gift.  They get to shop anywhere they like without being bound to a single store like the traditional gift card.  Some may suggest to simply give cash to avoid the activation fee, however, giving cash to a frugal person (like me) will just end up being saved or used for essential bills.  This way, the money can be spent as a gift without any guilt.

Using the card could not be simpler.  I would think a gift card like this would need to be activated somehow. With the Vanilla Mastercard however, the user simply swipes and signs, just like a regular credit card.

The Downside

If I were to look at the downside of prepaid credit cards, I would say that tracking the balance is a bit of an inconvenience.  Typically with specific store based gift cards, the balance is shown on the receipt.  Not so with prepaid credit cards which need to be tracked by the user.  The transaction will simply decline if the purchase price is greater than the card balance.  Fortunately, the Vanilla Mastercard has an online system to track purchases painlessly.

Another annoyance is the fee charged for inactivity.  For the Vanilla Mastercard prepaid credit card, they start charging $2.50/month at the 6 month mark after activation.

So, with Christmas around the corner, you may be considering a gift of a prepaid credit card (at least I am).  There are a few offerings for prepaid cards in Canada, which I have compared below.

Prepaid Credit Card Comparison

Vanilla Mastercard BMO RBC
Activation Fee $4.95/$50, $5.95/$100, $6.95/$200 $9.95 (valid for 3 years) $3.95
Monthly Fee $2.50 starting 7th month after activation $2.50 after 12 months inactivity $1.50 starting 7th month after activation
Online Access Yes Yes Yes
Anonymous Yes No No? (must be purchased in branch)
Reloadable No Yes No
Expiration 12 months from activation 3 years Yes (not indicated on website)
Cash Withdrawal No Yes No
Amount refunded after expiry: No Yes No
Extras None Extended Warranty/ Purchase Protection None
Vanilla Mastercard BMO RBC
Activation Fee: $4.95/$50, $5.95/$100, $6.95/$200 $9.95 (valid for 3 years) $3.95
Monthly Fee: $2.50 starting 7th month after activation $2.50 after 12 months inactivity $1.50 starting 7th month after activation
Online Access: Yes Yes Yes
Anonymous: Yes No No? (must be purchased in branch)
Reloadable: No Yes No
Expiration: 12 months from activation 3 years Yes (not indicated on website)
Cash Withdrawal: No Yes No
Amount refunded after expiry: No Yes No
Extras: None Extended Warranty/ Purchase Protection None

Final Thoughts

Judging from the table above, it seems that the BMO product is best if you were to purchase the card for personal use as it has a long expiry date along with extended warranty/purchase insurance .  However, as a gift the $9.95 charge is a bit high which makes it a toss up between the Vanilla Mastercard and RBC.

What are your thoughts on prepaid credit cards?  Would you buy them as a gift?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 47 comments… add one }
  • Observer October 19, 2009, 8:56 am

    Would never buy a prepaid card as a gift. Either I buy the giftee something I know he/she will like. Or I ask them what they’d like. Or I give cash. But the tradeoff of card versus cash has no benefit. There are fees. There is inconvenience. There are restrictions on use / lower flexibility vs cash. No way.

  • Tom October 19, 2009, 9:56 am

    I’m with Observer, I think this is the worst idea ever. There is zero benefit over giving someone cash.

    Cash is money and at the end of the day it’s all about the money. Why lose some of the money that you decided to give someone by using one of these ridiculous gift credit cards.

  • Brian October 19, 2009, 9:58 am

    When mentioned that the transaction will decline if there is not enough money on it, it’s likely there will always be a little balance left over that will be “donated” to the credit card companies. Seems like the credit card companies make it hard to squeeze out the last dollar unless you know the balance, which they conveniently do not tell you.

  • Canucktuary October 19, 2009, 10:02 am

    Good for elderly people who avoid online shopping due to privacy concerns. With a prepaid card, the only thing they have to lose is the balance of their card.

  • Ben October 19, 2009, 10:25 am

    Not for me, thank you. Seems a bit like a “gateway drug” of free money, leading the recipient toward greener pastures of a true credit card.

    Good point Brian. For the last purchase to use up the remaining balance, you would first have to know the exact balance on the card in order to request that amount be authorized toward the card first, then pay the remainder with another form of payment. A lot of people will not be bothered to do this, either through forgetfulness or laziness. On average, the cards will end up in kitchen drawers with a few bucks still left on them. This is where regular gift cards go to die, and credit card companies want a piece of that action.

    The whole thing is slanted toward the corporations making more money from the oblivious.

  • Ramona October 19, 2009, 11:05 am

    Timely post FT. The benefit I see is that assuming it can be used for online purchases – good to minimize exposure, and also to allow those without a traditional card to do so – are these cards available to use for online FT?

    Also you indicate that the RBC must be bought at the branch – does one have to buy from BMO? And what about the Vanilla card? and what’s with the name anyway?

    Cheers!

  • This is why I signed up with ING Direct October 19, 2009, 11:51 am

    I agree with Ben. There are positive things going for the prepaid CC, but in my case the disadvantages outweigh the advantages.

  • Serene October 19, 2009, 11:52 am

    What happened to good ol’ fashion cash in a card?

  • noob October 19, 2009, 12:01 pm

    I wonder if this might be an option for folks without a credit cards (such as travellers from overseas where debit is more the norm) to use these kinds of cards to rent a car with. Most major rental car companies have a lot of paperwork to do when renting a car using a debit card and having a credit card make it easier. Just a thought….

  • Sasanam October 19, 2009, 12:05 pm

    Frugal trader,
    Your point that cash will go into savings when given to a frugal person has no merit. A frugal person could use this card on groceris or other on going necessites. Only advantage seems to be the online purchase one, but I think the disadvantages out weigh that one advantage.
    In my opion, a store specific gift card or crispy new bills still beats these money suckers.

  • Troy W. October 19, 2009, 12:52 pm

    I’m usually a fan of this blog, but must say that I’m rather disappointed in this article… seems you are recommending prepaid credit cards in spite of being a very expensive option to a cheque or cash. A $50 gift nets you a 13.9% fee just for activating the card.

    Your argument about getting cash would just go in the bank… not a bad option, in my opinion, if that’s what I wanted to do with it.

    Having both received one of these cards and researched purchasing one (but opted to give the gift in cash instead), there is MUCH, MUCH MORE to it than you mentioned and I feel you could have researched it better before releasing this article.

    Try using one of these prepaid credit cards online! While it may work for some, the one I received (for $25) would not work no matter what site I tried it with (including Amazon.ca)… and here is the kicker… when I called the phone number on the back (which was NOT toll free), and input my prepaid credit card number… I had to authorized a fee of $0.75 before being put through to the automated system. When I had requested to speak with an agent, to find out why I could not use the card, I had to approve an additional charge of $1.50. I was probably on hold for 10 minutes before getting an agent, but I refused to hang up because I had already spent 9% of the $25 I had received. And the response that I got… “It should work”. But it didn’t!

    BUYER BEWARE… to anyone contemplating purchasing one of these cards as a gift…DON’T… send a cheque or cash or even a money order… all better option. And for those of you who receive one… DON’T BOTHER TRYING TO USE IT ONLINE AND CERTAINLY DON’T CALL CUSTOMER SERVICE.

  • JFG October 19, 2009, 12:55 pm

    It’s a cash grab for the company. Nothing more, nothing less.

    As for the on-line purchase angle, get better security on your computer and know where you are buying.

    As a side point, there is no expiration date in Alberta.

  • FT FrugalTrader October 19, 2009, 1:00 pm

    Sasanam, I wrote this article before I started spending on the card, and you are right, I have used the card mostly for groceries/essentials. Although, I did buy some new clothes for work. :)

    Troy, it’s simply a matter of opinion. From my experience, receiving a prepaid credit card as a gift is great, there are no fees unless you hold the card for a long time. The activiation fee is paid for by the buyer. With regards to online shopping, Vanilla Mastercard has an online registration form that can be used so that the card can be used online.

  • mork October 19, 2009, 1:14 pm

    I agree with everyone else here, what is the point? Pretty high cost for zero benefit over cash. There are some many problems with these cards (abaility to use the entire balance, future fees, etc) that I actually think it is rude to give one as a gift. There are lots of great ways to give “cash” as a gift, and this is not one of them.

    Teenagers who are unable to get their own CC may find it desirable to make all of the online purchases they’ve otherwise been unable to do.

  • Cam Birch October 19, 2009, 1:15 pm

    I recently purchased some prepaid CCs from RBC and am glad I did. The purchase process is quite simple although they do record the purchasers ID for some annoying reason. The RBC activation fee is definitely the lowest of them all. With an online activation you will be able to use the card for Internet transactions and find out the remaining balance. From my research the RBC card had the lowest number of restrictions and hidden fees. If I remember correctly the BMO card is actually issued to the requester just like a standard CC with the requesters name and such (reason for the fee being so high).

    I find they are great gift items, especially when you give them as a business gift (full write off). Also can be quite useful for people who don’t have a great handle on their expenses yet, good for budgeting. With RBC a $400+ card has a less than 1% fee attached so it can be very useful in limiting your spending.

    The fees and expiration really was an annoying hit at first and I stayed away from them. With Alberta having legislated that gift cards cannot expire I was very annoyed to discover that the CC versions still have expirations. When it really comes down to it these are quite useful, I would still hedge toward a real gift when it comes to family but when that isn’t possible this is a great option.

  • Elbyron October 19, 2009, 1:30 pm

    For my wedding, I gots lots of cash gifts, mostly cheques. One of them was one of these $50 prepaid cards. I felt that the $6.50 was just a waste, that the person could have given me $56.50 in cash or just saved themselves the fee. Rather than try to track the balance, we just spent it on our first purchase over $50 and told the cashier to debit the card for the full $50, then apply the rest to my regular credit card (though it turns out The Bay can’t use two credit cards in one transaction so I had to pay the balance with cash or debit).

    Ontario, Manitoba, British Columbia, Alberta, New Brunswick, Nova Scotia and Saskatchewan have consumer protection laws in force that prohibit gift cards from expiring or having dormancy fees. But apparently these don’t apply to prepaid credit cards because those are under federal jurisdiction. I wish the feds would step up and implement the same rules!

  • Harv October 19, 2009, 1:44 pm

    I think it is a good gift option in business world where you don’t know the other person’s taste.
    Instead of giving a specific store card which might not be used or forced to use, this could be used in any way.
    This card can be used for anything!

  • Briefcases October 19, 2009, 5:05 pm

    I don’t think I would ever buy this as a gift to someone. The activation fee really is too high for a gift. Are we giving the gift to a friend or the bank?

  • Caitlin October 19, 2009, 5:47 pm

    I for one think they are great. My husband got some from his employer as a reward, and it was great. Very easy to use, and he were able to get some much-needed new work clothes. Way nicer than gift cards that limit purchases to certain stores. :D

    If you are a gift-giver who doesn’t like the fees, then don’t buy one. There are, as noted in the comments, cheaper ways of giving money as a gift.
    Cash in a card will always be a classic.

    If you are a recipient, complaining about the activation fee that the giver paid is really tacky. If you get one, enjoy it, because someone obviously cared enough about you to get you a gift. If I gave one to a friend and then heard them complaining that I could have just given them $57 instead, they wouldn’t be receiving any more gifts from me. Problem solved.

    When mentioned that the transaction will decline if there is not enough money on it, it’s likely there will always be a little balance left over that will be “donated” to the credit card companies.

    There will only be money left over on the card if a person is lazy. If you run a transaction for the amount on the card (or the amount left on the card) wit will go through. I have not yet run across a business that would not let you split your purchase over multiple payment methods (because they would rather you spent your money there then save on the transaction fees). If you have have $15.67 left on a card, buy something for $20. Put the $15.67 on the card, and pay the rest in cash (or your preferred payment method). Easy as that, you get all the money on the card. :D

  • cannon_fodder October 19, 2009, 9:13 pm

    I think these cards are great… if you own stock in BMO, RBC, etc. like I do. Buying one for someone as a gift? I wouldn’t but I encourage everyone else to do so!

  • Cash Instinct October 20, 2009, 12:27 am

    SDM had a promo to get extra SDM points when purchasing a Vanilla Mastercard during the summer (for 1 week), it was the only week it was worth it for me to buy that kind of giftcard.

  • eva October 20, 2009, 1:22 am

    There are positive things going for the prepaid credit card but i like visa credit card too..

  • Greg October 20, 2009, 4:06 am

    If someone wants to give me one of these cards, I’m more than happy to accept it.

    I don’t pay fees, so there is no way I would every purchase one. It makes way more sense to give cash or a cheque -> No Fees for me, no fees for the receiver, no expiry and no restrictions on where it can be used.

  • Joseph Sullivan October 20, 2009, 10:02 am

    I guess I am lucky or the Prepaid Visa card I use is different because I work in the US and my company allowed me to choose this type of card to receive my pay and I have had the card for 6-7 months and not paid any fees…yet. (How’s that for a run on sentence?!). Being in the US and this being a Canadian website (maybe?), I have no idea how I landed here…

    Anyway, I have no monthly fee, no activation fee (at least I wasn’t asked to pay one), no fee when I make purchases, no fee for ATM use on their network (their atms are everywhere thankfully!), no overdraft fee. Some have mentioned that the money left on the card could be a gift to the company because it is difficult to get all of the money off of the card. For me, I just go to virtually any bank and ask the teller to give me the money and there is no charge.

    Somebody had mentioned balances and I do not get them on any receipts. But, I am able to call their customer service at no charge and get my balance or check it at their website at moneymanagercard.com

    I don’t know if you can get a money manager card from a retailer or directly from their company, but it doesn’t hurt to ask.

    Anyway, that is my experience. I guess I should say that paying a $5-$10 fee to activate a gift card makes it an unacceptable gift!

    Joey

  • Four Pillars October 20, 2009, 11:22 am

    I’m with Greg – they are kind of a stupid buy. However, if someone gives one to me then I won’t complain. :)

  • YYC27 October 20, 2009, 12:59 pm

    I would never buy somone a Visa/Mastercard gift card. The fee just isn’t worth it for any advantages it offers over straight cash.

    Also, I think giving someone cash (or cash equivelant) is rather lazy. If I’m really stuck on what to get someone, I’ll at least get them a gift card to a place I know they like to shop at.

  • Credit Card Chaser October 20, 2009, 9:16 pm

    I personally would never buy a prepaid card as a gift – although I certainly would not refuse one if someone gave one to me :) They do seem to be growing in popularity though as many merchants are opting to send out a prepaid card rather than send out cash for a rebate.

  • Jordan October 21, 2009, 10:11 am

    I hate store specific gift cards, and since my family know I just save the money they give me I guess it would be a good option for them, they like to see me get something and attribute it back to their gift.

    However just a word of warning I read some comments about people getting them as gifts from employers, last time I checked cash-like gifts are considered taxable income\benefit by the CRA. Otherwise I’d be giving myself and my wife one from my corp every year!

  • Neil October 21, 2009, 8:17 pm

    I received one as a wedding gift this year. Frankly, I felt that the giver had wasted their activation fee, and the card wasn’t overly convenient to use. I ended up waiting until I had a purchase where I could spend it all in one place, just to make my life easier.

    I have talked to other people who’ve had issues using these cards in some stores, making them even more inconvenient. I’d still rather get cash, a real gift, or if you insist on a gift card, get one for a store I’m likely to shop frequently. (ie. not HBC, which I get with excessive regularity considering they don’t sell anything I want)

  • Canada Deals October 22, 2009, 12:47 am

    My dad wanted to buy the kids prepaid credit cards last year for Christmas. After we read all the fine print (gobbledeegook?), we decided against it. Total rip off.

  • Calvin October 25, 2009, 11:22 pm

    LOL. I’m pretty sure most of us won’t be buying pre-paid credit cards as gifts for our friends or family.

    Pre-paid credit cards are a god-send for business people though. I use them exclusively to incent my clients into giving me referrals. Works like a charm because they can use the card almost anywhere.

    Thanks earlier for the tip on RBC! I buy a TON of these cards.

  • tammy sbrocchi November 5, 2009, 3:44 pm

    i want to apply to get a credit card

  • John November 6, 2009, 3:46 pm

    Frugal Trader:

    About the Vanilla Prepaid Credit Card, you wrote on October 19th that Vanilla MasterCard has an online form that can be filled out in order to use the card for online purchase. Could you give me more details, I could not find it. Has anyone been successful with online purchase where the seller ask for name and billing address (using Vanilla MasterCard)???

    I am looking to use my Vanilla Prepaid MasterCard only for online buys (iTunes, Skype, eBooks). I would really appreciate your help here… Thanks!

    Steve

    • FT FrugalTrader November 6, 2009, 3:54 pm

      John, after you click on “account history” and input your card/serial number an extra menu option on the left will show up indicating “Register Your Card”.

  • lacrimosa November 6, 2009, 6:46 pm

    I think prepaid credit cards are quite convenient when I’m traveling. I don’t like giving them to people as gifts. It makes me feel I’m giving them money. I know the prepaid visa gift cards from Netspend are quite good. You can have a try.

  • Sam Li November 7, 2009, 6:01 pm

    There are quite a few types of prepaid credit/gift cards available. It makes sense to use prepaid credit cards for online purchases, with recent identity theft problems. As for a gift – cash probably the best decision. For most of the gift cards you have to pay GST, which doesn’t make sense either. So my vote is for the cash.

  • YYC27 November 7, 2009, 7:03 pm

    Sam: You DO NOT have to pay GST on a gift card.

  • Susan Mladenovich, CMA November 8, 2009, 3:49 pm

    I got my 13 year old son a prepaid card through MuchMusic so that I don’t have to pay for the Itunes and Xbox purchases. Plus I can track his purchases and also he won’t lose the cash. My assistant got one through CAA for her son when he went to Italy on a school trip. Again, he couldn’t lose the cash and she could also put more money on the card if he needed it.

  • Gates VP November 17, 2009, 2:56 am

    Look, these things have a very limited scope, but they do have some uses.
    The biggest positive if for the “under-18-no-credit-card” crowd.

    However, these things are just rife with issues. They don’t always work on-line and the don’t work at some brick and mortar merchants. The expiry shouldn’t be an issue on most gifted cards, but the expiry rates border on usury.

    I honestly like the idea of cash cards. The concept of moving money onto a card is a fundamentally sound idea (mobile phone money transfers are a fast growing business in parts of Africa). But the current rates are simply un-competitive with the existing state of affairs.

    When almost everybody has a no-fee bank account and free check cashing, the check option seems like a no-brainer. Heck if you really feel like paying fees to transfer money, use a Money Order or a Cashier’s Check or a fricken MoneyGram :)

    Of course, if they could drop these things to like sub-1% activation fees, I think they would actually see a rise in use. Of course, they won’t for now, b/c the competition doesn’t exist, but it won’t be long.

  • Emmanuel November 25, 2009, 10:25 am

    What’s with the whole Prepaid CC vs Cash war?

    Any ways.. Most prepaid CC would benefit teens ( like me) or young adult. Have a child travelling either for university or over seas? Just get them the BMO card put X amount of money on it and give it to them. Just write down the code on it and track their purchases so you know what their doing. If they ask for more money just relaod there card online but ONLY depending on how their managing it.

    Prepaid credit cards give people the option of buying stuff online. It’s easy to add funds to paypal with them. Master Cards give people the option of buying stuff online and in stores , and cash limits people to in store trades ( though theres like money order and stuff those are less conveinent and not always as safe)

    I would’t say one is better then the other ( cash or Pp.Cc) but they all have different advantages.

    I’m 14 but looking on that chart I’m going to try and get a BMO card because it last the longest and is reloadable

  • cashback cards December 23, 2009, 10:22 am

    These can make some really great gifts, but it’s suprising me how so many companies are already going to this. I signed up for a promote for a rebate on a item and I was thinking I would get check in the mail. But, no they came in as these prepaid credit cards with there actual brand on it. While at first my wife was alittle upset thinking and wanting to cash to just throw in the bank they turned out to be a great way to spend money on our latest vacation.

    Great article and thanks for sharing all the great information like always!

  • Future Money-Bags January 24, 2010, 10:08 am

    Not sure if anyone mentioned this, but if you have bad credit from past debt or perhaps a bankruptcy; these cards are great!
    Can be used as a CC, and depending on where you get it, can be used on more online sites.

    People with bad debt or bad credit, don’t want to be carrying around the only money they have. Having this mini credit card, that has no monthly interest on purchases; can be considered a nice change.

    Just a thought.

  • Josh June 17, 2010, 1:01 am

    Wait that comparison chart up there – BMO has a reloadable prepaid credit card if I read that right, right? If they do I need to go to them for it. Reloadable sounds nice otherwise prepaid cards in general I use a lot and they’re handy, even if I have to go through activation fee – paaain. But like Future Money-Bags said up there, there’s not a whole lot you have to worry about when carrying a prepaid card. And I think it’s good for young teenagers that wants to buy online products from Amazon and stuff.

  • JoAnn Bentley November 2, 2012, 12:43 pm

    Appears to be a solution for avoiding expensive postage for gifts I send from US to Canada, which sometimes never arrive at the destination anyway.

  • Noni Mausa January 8, 2013, 10:33 am

    Hmm. I got a prepaid Mastercard at BMO a couple of winters ago, for safe net purchases and other small purchases. It worked well enough, but yesterday (7-January-2013) I got an email from the bank saying the cards are being discontinued as of the end of March, no reason given.

    I found that over the time I owned the card, there were sites and businesses that wouldn’t accept the prepaid cards at all, though none of them explained why.

    Adding insult to injury, this past year or two I have found that many businesses in the States would not accept my Canadian DEBIT card, unless it was backed by either Visa or MasterCard. What’s the use of having a debit card that pays out real money backed by my bank, if they still want a credit card company in for their slice? Do I have to travel with sacks of money now?

  • nathan January 11, 2013, 5:50 pm

    i got one of these for christmas, i loved it…..it enabled me to not only make purchases from ebay but open a paypal account without having to use my bank account

  • Andrea March 7, 2014, 11:33 pm

    Prepaid Visa Card is the worst card I have purchased. I could barely get any transactions to go through online and their phone support was complete a waste of time. Brutal.

    The Mastercard I had last month worked on all the websites that I needed it to and when I needed help with one thing their support was great.

    I regret purchasing the Visa. Worst mistake and now I’m stuck with a card I cant use

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