There are a number of important differences between the two types of cards that can make a difference in how you manage your business finances.
So what’s the difference?
A prepaid card requires you to load money onto your account before you can spend. There are no credit options (overdrafts etc.) available and are one way of managing a budget.
Having the ability to only spend what you load on to it is really helpful if you want to make sure you aren’t overspending unnecessarily or keep to a set budget for whatever you need to spend on.
A prepaid card doesn’t require a credit check so the account won’t appear on your credit history. As there are no options to go into an overdraft or take out a loan, there isn’t a way it can affect your credit score as all the money you are spending is yours.
You can also use these cards to get money out at ATMs and they sometimes offer good exchange rates when abroad, meaning they could be a great option for those travelling or if you don’t want to take a lot of converted cash on holiday/business trips with you.
Some prepaid cards do incur fees as you spend. They may charge you for each purchase made with your card or to withdraw cash from the ATM. You’ll want to check this before you get and start using one as you could be paying more than with another card. Mettle doesn’t charge any fees for opening or using their prepaid card.
The biggest difference with a debit card is that it requires you to open a bank account and will generally require a credit check. The card is linked directly to the account and quite often comes with the choice of an overdraft facility and other benefits, depending on the bank.
For most debit cards there are credit checks done. This depends on the type of account you’re applying for and the level of credit associated. For example, if you are applying for a basic account with no overdraft then a soft credit check will be performed whereas if you are applying for a large overdraft, the bank will carry out a more thorough credit check.
Generally, most debit cards don’t charge fees for spending, but there are often fees that come with going into your overdraft or in the event that you go over your agreed overdraft limit. Depending on which bank you are applying for these can differ.
With a debit card, you can withdraw cash from ATMs and most banks don’t tend to charge fees. However, the individual ATM may charge fees so be wary of this when you are taking money out of each ATM.
Debit cards also tend to come with differing levels of benefits and credit. Some debit cards may charge for monthly use, but this tends to bring with it larger free overdraft amounts amongst other benefits such as insurance etc.
Are debit cards safer than prepaid cards?
With both cards, your money is protected. With debit cards, you’re generally covered by the FSCS scheme which allows you the protection of up to £85,000 if anything were to happen with the bank.
Prepaid cards, such as Mettle, tend to be covered by the FCA’s safeguarding requirements. The purpose of safeguarding is to protect and return customer money if a company fails. You can find out more here.
With both cards, you should have access to an online system that allows you to see your balance and transaction history but with a debit card, you'll be able to control your overdraft and any other benefits you get with your account.
Choosing the right card for you
Both prepaid cards and debit cards have their pros and cons and, depending on the needs of you and your business, either could work.
If you’re looking for cards purely for day-to-day spending prepaid cards might be the way forward. A debit card might be better if you want to get a full view of your business’ spending and incoming funds while having the luxury of features such as an overdraft or multiple accounts under the same bank.
Depending on what it is you’re looking to spend on will almost certainly determine which card you go for. Some prepaid cards don’t allow for you to set up Direct Debits or pay for subscriptions etc.
Mettle provides a prepaid card and business account. Find out more here.