Credit Cards

What is a Stored Value Credit Card?

A stored-value card, or prepaid card, is a financial instrument that is used just like a debit card, but does not have to be linked to a bank account.

Prepaid phone cards were one of the first examples of a stored-value card, but were a “closed-system” tool, meaning that it can only be spent for one kind of service, or with one company. A department store gift card is another example.

“Open system” cards are becoming more common. They typically display the name of a major credit/debit card company, and can be used in places where the issuer is accepted.

What are the Advantages of Stored Value Credit Cards?

The advantages are many. Teenagers who are just learning financial responsibility can use a stored-value card for emergencies, and the damage is limited to the amount placed on the card, in the event that your teen’s definition of “emergency” differs from yours.

They have also been aggressively marketed to immigrants and those without access to bank accounts. jStored cards work extremely well for those with bad credit or checking history. Others who have a need for a card on only very rare occasions may also benefit from having a stored-value card.

Are stored value cards a form of credit?

Stored value cards usually do not carry credit history, good or bad. It is not required that a stored-value card be linked to a named bank account, and in some cases the card is not issued in anyone’s name, meaning they can be used anonymously. While this may conjure images of terrorists and spies making covert transactions, the truth is much more harmless. They are an excellent choice to track an office petty-cash fund, or to provide employees who are on the road a source of emergency cash for company business, without handing over a blank check.

Because of this feature, however, these stored-value cards do not have the benefit of refund/return assistance, and there is no protection from unauthorized use. If you lose it, it’s gone.

Some companies even use them instead of standard payroll checks to pay employees, due to the decreased costs.

Beware of high user fees, however. Some companies charge a set up fee, in addition to an additional fee for each transaction. This could add up to hundreds of dollars each year in fees.

Card-issuers do not usually report data to credit bureaus, so in general, stored-value cards are not a good way to build credit scores. When in doubt, check the fine print of your card holder agreement or ask the issuer.