Prepaid cards are a great way for unbanked people to conduct transactions without cash and for people to limit their discretionary spending. But can you invest with a prepaid card? Let’s look at prepaid cards and what you can do with them.
Can You Invest With A Prepaid Card?
Due to anti-fraud and anti-terrorism regulations, you can make some investments with a prepaid card but may struggle to buy stocks. But you can use the money on a prepaid card for cash trading or invest in other things, like furthering your education, which yields other long-term benefits.
So, you don’t have a traditional bank account or don’t want to use a debit or credit card to invest. Are prepaid cards the answer to gaining access to investments without a traditional bank account?
To invest in the stock market, you will need to open a brokerage account. A debit card is one of the easiest ways to fund a brokerage account – by using an ACH transfer. This simply makes the stock market far more accessible to the average person.
However, one of the biggest problems that people encounter when investing in stocks with a debit card is the issue of overdrafts. Banks will charge roughly $35 for incurring an overdraft. So, you’re going to want to ensure that your brokerage doesn’t use over drafting to fund your brokerage account.
However, this also means that you can’t spend debit card funds on margin. You can’t invest more money than what you have immediately available when a promising investment opportunity arises.
In addition, if the price of a stock increases directly after you purchase a stock, it will not be completed if you don’t have funds in your brokerage account.
If you’re unaware of what a prepaid card is, they are functionally similar to debit cards but don’t require you to have a bank account for you to use them.
A prepaid card is very similar to a gift card and can be loaded with cash for you to spend without carrying physical cash, similar to how a debit card operates. But, once the balance hits zero, the card will be refused when you overspend.
You can reload the card online or at an ATM to continue spending without having a bank account. Your company or government can pay your salary or benefits on the card. You can spend the money at your discretion without affecting your credit. People with bad credit scores often favor prepaid cards.
However, when it comes to investing in stocks, a prepaid card isn’t likely to get you very far, simply due to the almost-anonymous nature of prepaid cards, which allows anyone to use them. But with a willing broker and the correct documentation, you may be able to work around it.
Regulations such as the anti-terrorism provisions in the 2001 Patriot Act and anti-laundering regulations will make it difficult for you to use prepaid cards to invest in stocks. Therefore, it is highly unlikely to find a broker willing to open an account with you.
However, you can use a prepaid card to transfer money into a checking account (if you have one) or via Venmo to conduct cash trades, which allows you to use cash on hand to fund a brokerage account.
However, this also means that you can’t trade on the margin, as is the case with a debit card that doesn’t allow overdraft spending.
Are you looking to invest in the stock market without a social security number? Find out how to do so here.
However, one of the easiest ways to invest with a prepaid card is to invest your money in cryptocurrencies, whose market is far more loosely regulated.
Another alternative to using a prepaid card to invest in stocks would be to use the money loaded on the card to buy online courses, furthering your education and improving your skillset. This would raise your earning potential, giving you more money, which you can invest through other avenues.
Robinhood allows you to sell stock and make purchases using your credit card. You can use the money earned from stocks, options, ETFs, and cryptocurrency to make purchases with your credit card. However, it will take time for the transaction to execute, so bear in mind that it may take some time before you can use that money.
On the same note, you can use a debit card to fund your brokerage account or deposit money to purchase cryptocurrencies through a Robinhood Crypto account.
So, if a prepaid card is similar to a debit card, but can’t be used to invest in stocks, what are some common features of all prepaid cards?
Not every bank’s prepaid card offers the same features, but there are a few functions that they will all offer.
You can use a prepaid card for ATM withdrawals, make in-store purchases, and pay bills.
There’s no credit involved with prepaid cards, which means they are available to anybody, regardless of their credit history. They do, however, have an account and routing numbers.
A prepaid card will prevent you from overspending, avoid overdraft fees, limit losses from fraud, and help you to overcome a poor banking history. What’s also great is that they offer many great cashback rewards.
However, they do not help you build a credit history and are littered with fees that can add up to a huge portion of the money you have paid into the card.
So, if you’re looking to invest in something with a prepaid card, it presents a major challenge that most brokers may not be willing to take on. Suppose you want to invest in something that will yield you long-term benefits similar to stock investments.
You could opt to use your prepaid money to invest in cryptocurrencies or further your education, which gives you greater earning potential.