TORONTO — Ellie Clin uses a Wealthsimple Cash prepaid Visa card to pay for gifts, takeout, groceries, entertainment and other non-essential expenses and keeps her bank’s Visa card for larger purchases and monthly bills .
“I’ve never been good at formal budgeting with spreadsheets and receipts. When I was using my main bank account for my personal and entertainment expenses, I discovered that there were months where I would go and pay my Visa bill and swallow because I knew I had overspent” , said Clin, a 35-year-old program. director in Kitchener, Ontario.
“I like that I can just look at my Cash account balance and have a simple yes or no answer as to whether or not I can afford something right now.”
Clin is not alone.
The prepaid credit card market in Canada is expected to grow rapidly over the next few years. According to an October 2021 study commissioned by the Canadian Prepaid Service Providers Organization (CPPO), the number of open-loop prepaid accounts in Canada is expected to double to 93 million accounts by 2025. open are prepaid cards that can generally be used anywhere these cards are accepted. Closed-loop maps, on the other hand, usually only work with one company.
Prepaid credit cards, which allow users to load a set amount of money onto the card, can be beneficial for people who struggle with impulse or emotional purchases and need more structure, said Liz Enriquez, personal finance mentor for Canadian millennials at Ambitious Adulting in Hamilton, Ont.
“Some people recognize that they’re just not good with credit cards, but they want to improve their personal finances.”
While people have traditionally been told to cut off credit cards for overspending, it’s harder to do so these days when so much spending is happening online, especially during the pandemic, Enriquez said.
“Credit cards are almost a necessary tool, especially for younger generations who grew up not using so much cash.”
For people looking to get out of debt or avoid getting into debt, a prepaid credit card’s set limit can help with self-discipline, she said.
While revolving credit cards only require a minimum payment each month, prepaid cards create a mindset shift as you only work with the money you actually have, which creates a spending or budgeting plan strength.
This is also why some prefer prepaid credit cards to debit cards – it strictly limits how much you can spend on certain categories of expenses the card is supposed to pay for. And spendthrifts are unlikely to accidentally dip into money for rent, bills, or other expenses.
Additionally, prepaid cards are useful for Canadians with bad credit who don’t qualify for traditional credit cards, Enriquez said. Since prepaid cards don’t require credit verification, they can be used like a regular credit card for shopping online, booking hotels and more.
One thing to watch out for, however, is that many – but not all – prepaid cards may include fees, such as annual dues, account inactivity, use of certain ATMs, card replacement, and exchange.
Enriquez said fees shouldn’t be a deterrent because many credit cards also charge fees.
“You just have to choose what you want,” she said.
For Clin, the main downside to her prepaid card is that there’s a limit to the amount of money she can both transfer and store in the account.
“Wealthsimple’s instant deposit feature means I don’t have to wait for funds to fully transfer from my bank account before I can use them, but it’s a limited amount,” Clin said.
“Once when I tried to add more than the instant deposit amount required by Wealthsimple, it took over five business days to appear on my Cash card, but [the money] had already been withdrawn from my bank account and I did not have access to these funds for over a week. So it takes some financial agility and enough cash to have the patience to move your money.
This limits the number of large payments I can use the prepaid card for, Clin adds.
Despite its limitations, Clin said the benefit of having a separate account for personal and entertainment expenses is still worth it, given his aversion to stricter budgeting.
“In a way, the limit on this instant deposit feature is a really easy way to limit my personal and entertainment spending overall, because it means I’ll give it an appropriate break and think about any larger purchases. and if I really have the funds to cover them.”
This report from The Canadian Press was first published on February 22, 2022.
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