Deciding on the best prepaid credit cards in Canada is pretty subjective. Some people are looking for a prepaid credit card because they want to increase their credit score while others prefer a hybrid card that allows you to preload funds and get rewards while using a credit card network.
Prepaid credit cards don’t give you nearly as many rewards as some of the best travel credit cards in Canada, but you don’t need to worry about having a high income or interest charges since you can only spend what you have. Here are my top picks for the best prepaid credit cards in Canada and what makes them unique.
The best prepaid credit cards in Canada
|CIBC AC Conversion Card
Although KOHO uses the Mastercard network, they aren’t technically a credit card. You can still use your card to pay wherever Mastercard is accepted, but your history doesn’t get reported to the credit bureaus, which means it won’t affect your credit score.
So why do people use KOHO? First, you’ll get $20 for free if you use my KOHO referral code CASHMONEY, but most people like KOHO because it helps them keep their spending under control. Obviously, you can only spend what you have preloaded onto your card, but the activity breakdown will help you analyze your spending so you can make adjustments as needed. Best of all, you’ll earn 0.5% cash back on all your purchases at all retailers.
Some people use the KOHO prepaid Mastercard like a bank account. They set up a direct deposit, so their pay goes right into the account. Alternatively, they can use Interac e-transfers to move money around. With direct deposit set up, your money earns you an interest rate of 1.2%.
I should also mention that there’s also KOHO Premium which is available to all KOHO users for $9 per month or $84 per year. Some people may think it’s weird to pay a monthly fee for a prepaid credit card, but you get extra benefits with the service including extra cash back, no foreign transaction fees, financial coaching, price matching and more.
Wealthsimple Cash Card
- No annual fee
- Up to $3,000 welcome bouns
- 1% back in cash, stocks, or crypto on all purchases
- 4% interest on deposited funds
- No foreign transaction fees on purchases or ATM withdrawals
- CDIC insurance protection
It may seem odd that I have two credit cards with no foreign transaction fees on my list of the best prepaid credit cards in Canada, but they’re similar, so they both deserve a mention. That said, I prefer the Wealthsimple Cash Card since it has no gimmicks. This card has no foreign transaction fees on purchases or ATM withdrawals. There is a withdrawal fee that the ATM operator charges per use, which is usually around $3. Since this is a prepaid Visa card, you do need to preload funds before you use it. That said, it’s arguably one of the best travel credit cards in Canada.
There’s no monthly or annual fee to get this card, so there’s no harm in getting it. It can also be added to Apple Pay and Google Pay. In addition, you get 1% cash back on all your purchases.
CIBC AC Conversion Card
The CIBC AC Conversion Card is a unique prepaid credit card in Canada that was designed with travellers in mind. You can load up to 10 currencies on the card, making it rather convenient if you’re travelling to multiple destinations. What’s fascinating about the CIBC AC Conversion Card is that the exchange rates you get from the site are better than what’s offered in a CIBC branch. This is because the card doesn’t need to worry about paying staff or operating a storefront. They’re focused on just giving you the lowest rates available.
The currencies available include:
- Canadian Dollars – CAD
- US Dollars – USD
- Euros – EUR
- Great British Pounds – GBP
- Mexican Peso – MXN
- Hong Kong Dollars – HKD
- Australian Dollars – AUD
- Japanese Yen – JPY
- Turkish Lira – TRY
- Swiss Franc – CHF
When you sign up with my exclusive referral link, you’ll get $20 for free. In addition, you’ll earn 1% cash back on all purchases. There is one drawback with the card. You’re only allowed one free international ATM transaction per month. When most people travel, they use a combination of cash and credit cards, so it would have been nice if this card offered a few more free ATM withdrawals.
What is a prepaid credit card?
The name prepaid credit card is a bit deceiving. Technically speaking, credit cards aren’t prepaid. You’re essentially getting a loan from your credit card provider with credit cards. They’ll give you an interest-free period that’s at least 21 days. No interest is paid as long as you pay off your full balance before your due date. However, if you don’t pay the full amount or only make a partial payment, you’ll pay interest, which is typically 20% – 24%.
The terms prepaid credit card and reloadable credit card often get used by Canadians, but the proper terminology is prepaid card since you’re not getting access to credit. You’re prepaying a card that uses one of three credit card issuers: American Express, Visa, and Mastercard. When you think about it, they basically function like a debit card but with the benefits of a credit card.
Since prepaid cards don’t give you access to credit, you don’t build your credit score with them. That said, some prepaid credit cards allow you to pay into a service that does report your credit history. If you want to improve your credit score, you’re better off using one of the best credit cards in Canada.
Do prepaid credit cards offer benefits?
What may surprise people is that many of the best prepaid credit cards in Canada come with benefits. Admittedly, what you get won’t be as impressive as some of Canada’s best travel credit cards, but you’re getting something nonetheless.
Some benefits that come with prepaid cards include:
- Cash back – Some cards allow you to earn cash back on every purchase made. Others have select partners where you earn extra cash back.
- No foreign transaction fees – Many traditional credit cards charge a foreign transaction fee of at 2.5%. There is a prepaid card that waives this fee for purchases and ATM withdrawals.
- Spending insights – Some prepaid cards have an app so you can track your spending.
- Welcome bonus – A few cards offer a small welcome bonus when you sign up. You can get an additional bonus when referring friends with select cards.
How do prepaid cards work?
Since prepaid cards aren’t credit cards, you’re better off thinking about them like debit cards. You can only spend the funds available. Depending on the prepaid card, you’ll be able to use it wherever Visa, Mastercard, or American Express are accepted.
There are two types of cards that you can purchase:
- Prepaid cards with a set amount preloaded – Some people refer to these as gift cards since you can purchase them for specific merchants. Alternatively, you can purchase a pre-loaded American Express, Visa or Mastercard that can be used anywhere they’re accepted.
- Reloadable prepaid cards – With reloadable cards, the balance starts at zero, but you can load funds when you activate the card. These types of cards are good for personal use.
How much do prepaid cards cost?
The fees you’ll pay depends on the type of card. Generally speaking, gift cards – sometimes known as closed-loop cards – have no fees. However, reloadable cards – sometimes referred to as open-loop cards – can have quite a few fees associated with them.
These are the fees to look out for when getting a prepaid credit card:
- Activation fee – A few prepaid cards charge a fee when you activate them.
- Monthly fee – Some cards have a monthly fee. A few prepaid cards have an optional premium service that comes with a monthly fee.
- Inactivity fee – If you don’t use your card in a set time period, some cards will charge you an inactivity fee.
- Load fees – Some cards charge you load fees. How much you’ll pay depends on how you load your card. For example, online, e-trasfer, and in-store.
- Foreign transaction fees – When making purchases in any currency except Canadian dollars, you should expect to pay a fee of 2.5% – 3%.
- Bill payment fee – A few prepaid cards charge a fee if you use your funds to make a bill payment through their platform.
- ATM fees – Some prepaid cards may charge you a fee when withdrawing from domestic and international ATMs. The ATM operator may also charge you a fee.
- Card replacement fee – If your card is lost, stolen or damaged, you may have to pay a fee for a replacement.
While this may seem like a lot of fees, there are quite a few cards, such as KOHO and STACK, that charge minimal fees. Prepaid cards that come with a lot of fees are usually found at grocery stores and gas stations.
Are prepaid cards safe?
Prepaid cards can be safe, but depends on the card and what your definition of safe is. For example, fintech backed cards such as KOHO and STACK are partnered with banks, so your funds are protected in case they go bankrupt. In addition, they have chip and PIN technology that gives you an extra layer of security. You can even freeze your cards via the app if you ever misplace your card.
On the other hand, generic reloadable credit cards and gift cards aren’t the safest product. With gift cards, if you lose them, you’re most likely out of luck. Some reloadable cards have limited security features. By the time you realize you’ve lost your card.
While some prepaid cards offer Mastercard and Visa zero liability coverage, where you won’t be liable for unauthorized purchases, there’s no guarantee that you’ll win your case.
How to choose a prepaid credit card
Even though there are only a handful of prepaid cards on the market, you don’t want to rush into things. Ideally, you want to consider all the features that matter to you first. Doing so will allow you to narrow down your choices. Here’s what to look out for.
- Fees charged – While some prepaid cards charge no or limited fees, there are others that seem to charge for everything. Read the fine print as you could be charged monthly, inactivity, load, and foreign transaction fees.
- Company owner – There are now a variety of prepaid cards that come from fintech companies. These cards come with an app that can help you manage your card. Be sure to read reviews of the company and app before you make a decision.
- Network used – Every prepaid card belongs to a specific credit card network. If you frequently shop at a merchant that only accepts Mastercard, then getting a prepaid American Express or Visa card is not a good idea.
- Welcome bonus – Some cards give you a sign up bonus when using a referral link. Check above to see what current offers are available and determine the conditions to get your bonus.
- Rewards earned – Although not every prepaid card offers rewards, a few do. Some cards give you a flat cash back rate for every purchase, while others offer an accelerated rate with select merchants.
- Load options – Since you can’t use your reloadable credit card without loading funds first, you want to make sure it’s easy to put money onto your card. Find out what are your options and if there are any associated fees.
- Spend options – Every credit card allows you to spend your money at merchants, but see if there are other ways to use your money. For example, e-transfers, bill payments, or ATM withdrawals.
- Load/spend limits – Some prepaid cards have a set limit for loads. For example, there might be a maximum amount of $5,000. A few cards also have daily spending and purchase limits. This could affect your ability to use your card efficiently.
- Security features – With prepaid cards, your funds are already loaded, so you want to keep that money safe. Some prepaid cards have better security features and insurance than others.
What are the types of prepaid cards?
As you’ve already learned, there are different types of prepaid cards. Each one is designed with a specific user in mind. Which one you choose could affect how you load and spend your funds.
Most fintech prepaid cards use Mastercard as their network. Many people in Canada prefer this since No Frills and Costco only accept Mastercard for in-store purchases.
Prepaid Visa cards
Prepaid Visa cards are accepted at any merchant that is on the Visa network. This applies to both in-store, online, and international purchases. Prepaid visa cards are found in gas stations, grocery stores, and pharmacies.
Prepaid American Express cards
Prepaid American Express cards aren’t as popular as Visa or Mastercard, but they are available. American Express sells these cards directly to consumers, so they’re not as easy to get. You would only be able to use this type of prepaid card at merchants that accept American Express
Prepaid foreign currency cards
A few prepaid credit cards are designed for travellers who want to hold multiple currencies on a single card. The best example would be the CIBC AC Conversion Card. The obvious advantage here is that you won’t need to carry a bunch of cash in different currencies while travelling. Since you preload your funds, you can even lock in rates when they’re favourable.
A gift card is preloaded in advance. Since they’re used exclusively at a specific merchant or network of retailers, they’re not associated with Visa, Mastercard or American Express. That said, you can purchase a prepaid Mastercard, Visa or American Express since they give you more flexibility.
What are the pros and cons of prepaid credit cards?
If you’re considering one of the best prepaid cards in Canada, you need to look at the pros and cons. Remember, every card is different so the advantages and disadvantages will differ, but here’s what you should look out for.
Prepaid credit card pros
- Controlled spending – Since you can only spend what you load, there’s no need to worry about overspending and interest charges.
- No annual fee – Many prepaid credit cards have no or low annual fees.
- Gives you access to credit networks – Even if you have a bad credit score, a prepaid credit card allows you to use the Visa, Mastercard, and American Express networks.
- Some rewards – Reloadable credit cards offered by fintech companies come with some basic rewards such as cash back.
Prepaid credit card cons
- Does not build credit – Most prepaid credit cards do not build your credit score
- Limited welcome offers – Traditional credit cards can come with massive sign up bonuses, but what you get with prepaid cards is limited.
- Low earn rate – While you may get some enhanced rates with select merchants, generally, prepaid cards don’t offer an enhanced earn rate.
- Not many benefits – You’ll only get a few benefits with prepaid cards, whereas regular credit cards can come with travel insurance, mobile device insurance, airport lounge access, and more.
Why use one of the best prepaid credit cards in Canada?
If the best prepaid credit cards in Canada don’t offer nearly as many benefits as traditional credit cards, why would anyone use them? As mentioned, some people may not have a choice because they may have a low credit score. If you’re in this situation, getting a prepaid credit card may be the only way for you to build your credit or make a purchase on one of the credit networks. If you don’t know what your credit score is, you can check your credit score for free with Borrowell.
The other reason some people prefer prepaid credit cards is that it keeps your spending in check. Since you can only spend what you have loaded, you’ll never go into debt, and you’ll never pay interest charges. This is an excellent way of managing your expenses as many people will spend less when they know they only have a fixed amount left. With regular credit cards, you have a pretty high limit, so it’s easy for you to spend more than what you can reasonably afford.
How to get a prepaid credit card
Getting a prepaid card is technically easier than a regular credit card. That said, if you’re applying for a fintech prepaid card, you typically need to be the age of majority in the province you reside and a resident of Canada. If you’re getting a gift card or generic prepaid card, there are usually no requirements at all.
Here’s how and where you can get a prepaid card:
The quickest way to get a prepaid card or gift card is to find them in stores. Gas stations, grocery stores, and pharmacies typically carry dozens of cards. In most cases, these gift cards have a set amount. For example, $50, $100, $250. You can also get network specific prepaid credit cards which gives you more options.
Fintech credit cards such as KOHO and STACK require you to apply online. Once you’ve applied, a physical card will be mailed to you. You’ll also need to download the app so you can take advantage of spending insights and perks. It’s also possible to order gift cards online, but usually they’ll come in digital form.
At a financial institution
Some banks and credit unions allow you to purchase prepaid credit cards in a branch. That said, many financial institutions have discontinued their prepaid cards. For convenience purposes, you’re probably better off getting a prepaid card online.
Are prepaid credit cards worth it?
It depends on your needs. The best prepaid credit cards in Canada have become incredibly handy in recent times. They have apps that track your spending, and you can get benefits such as cash back and no foreign transaction fees. If you’re worried about your spending, prepaid credit cards can be a good fit since you can only spend the funds that you’ve deposited.
Traditional credit cards give you more and better benefits, but prepaid credit cards still have a place in many wallets.