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Prepaid Mastercard and Visa Credit Card Comparison
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?
42 Comments, Comment or Ping
1. Observer
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.
Oct 19th, 2009 @ 8:56 am
2. Tom
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.
Oct 19th, 2009 @ 9:56 am
3. Brian
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.
Oct 19th, 2009 @ 9:58 am
4. Canucktuary
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.
Oct 19th, 2009 @ 10:02 am
5. Ben
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.
Oct 19th, 2009 @ 10:25 am
6. Ramona
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!
Oct 19th, 2009 @ 11:05 am
7. This is why I signed up with ING Direct
I agree with Ben. There are positive things going for the prepaid CC, but in my case the disadvantages outweigh the advantages.
Oct 19th, 2009 @ 11:51 am
8. Serene
What happened to good ol’ fashion cash in a card?
Oct 19th, 2009 @ 11:52 am
9. noob
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….
Oct 19th, 2009 @ 12:01 pm
10. Sasanam
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.
Oct 19th, 2009 @ 12:05 pm
11. Troy W.
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.
Oct 19th, 2009 @ 12:52 pm
12. JFG
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.
Oct 19th, 2009 @ 12:55 pm
13. FrugalTrader
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.
Oct 19th, 2009 @ 1:00 pm
14. mork
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.
Oct 19th, 2009 @ 1:14 pm
15. Cam Birch
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.
Oct 19th, 2009 @ 1:15 pm
16. Elbyron
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!
Oct 19th, 2009 @ 1:30 pm
17. Harv
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!
Oct 19th, 2009 @ 1:44 pm
18. Briefcases
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?
Oct 19th, 2009 @ 5:05 pm
19. Caitlin
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
Oct 19th, 2009 @ 5:47 pm
20. cannon_fodder
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!
Oct 19th, 2009 @ 9:13 pm
21. Cash Instinct
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.
Oct 20th, 2009 @ 12:27 am
22. eva
There are positive things going for the prepaid credit card but i like visa credit card too..
Oct 20th, 2009 @ 1:22 am
23. Greg
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.
Oct 20th, 2009 @ 4:06 am
24. Joseph Sullivan
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
Oct 20th, 2009 @ 10:02 am
25. Four Pillars
I’m with Greg – they are kind of a stupid buy. However, if someone gives one to me then I won’t complain. :)
Oct 20th, 2009 @ 11:22 am
26. YYC27
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.
Oct 20th, 2009 @ 12:59 pm
27. Credit Card Chaser
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.
Oct 20th, 2009 @ 9:16 pm
28. Jordan
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!
Oct 21st, 2009 @ 10:11 am
29. Neil
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)
Oct 21st, 2009 @ 8:17 pm
30. Canada Deals
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.
Oct 22nd, 2009 @ 12:47 am
31. Calvin
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.
Oct 25th, 2009 @ 11:22 pm
32. tammy sbrocchi
i want to apply to get a credit card
Nov 5th, 2009 @ 3:44 pm
33. John
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
Nov 6th, 2009 @ 3:46 pm
34. FrugalTrader
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”.
Nov 6th, 2009 @ 3:54 pm
35. lacrimosa
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.
Nov 6th, 2009 @ 6:46 pm
36. Sam Li
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.
Nov 7th, 2009 @ 6:01 pm
37. YYC27
Sam: You DO NOT have to pay GST on a gift card.
Nov 7th, 2009 @ 7:03 pm
38. Susan Mladenovich, CMA
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.
Nov 8th, 2009 @ 3:49 pm
39. Gates VP
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.
Nov 17th, 2009 @ 2:56 am
40. Emmanuel
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
Nov 25th, 2009 @ 10:25 am
41. cashback cards
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!
Dec 23rd, 2009 @ 10:22 am
42. Future Money-Bags
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.
Jan 24th, 2010 @ 10:08 am
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