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2 Ways Credit, Debit And Prepaid Differ

They’re made of plastic, and they’re used for financial transactions.

That’s about where the similarities among credit cards, debit cards and prepaid cards stop.

The most common differences among the three – a credit card is unique in that you borrow money when you use it, for example – are pretty basic. But the FDIC has put together a helpful primer that includes a few differences you might not know about.

The tips are included in the FDIC’s summer Consumer News publication, which the government agency just published.

Here are two things to know in deciding which card is right for you:

Fraud isn’t treated equally. If your credit card is lost or stolen, federal law limits your liability to $50. Lose your debit card, and your liability also is limited to $50 — if you report the loss or theft within two days. After two days, you could lose $500 or more. If your reloadable prepaid card or store gift card gets stolen, you could be out of luck.

Federal law does not limit your losses on prepaid cards. The FDIC says the Consumer Financial Protection Bureau is looking at beefing up consumer protection, “but any action is likely to be a year or more away.”

You could get hurt if your bank fails. If your debit card is linked to your checking account at your bank, FDIC insurance has you covered in case of a bank failure. But if the bank associated with your prepaid debit card fails, you might lose the money tied to that card.

It’s a bit vague, but here’s how the FDIC frames it: “The funds you place on a prepaid card may or may not be covered by deposit insurance in the event of a bank failure, depending on how the account where the funds are held is set up. …” (emphasis added)

You can read more about the differences between the three types of cards on the FDIC’s website.

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