Just the other day, I received a surprise gift in the mail – a $200 prepaid Vanilla Prepaid Mastercard.  There are not a lot of things that perk up my day more than receiving money in the mail, so as you can imagine, receiving a $200 shopping card was a pleasant way to start my day.

I’ve heard of these prepaid credit cards before, but I’ve never used one.  Upon examining the package, it clearly indicates that there is a $6.95 activation fee.  My first reaction was one of slight agitation as it eats into the balance (I dislike fees).  However, upon further investigation, I soon realized that it’s person who purchases the card that’s responsible for the activation fee when purchasing the gift.

Prepaid credit cards are a pretty smart revenue stream for credit card companies.  They get the initial activation fee for every card along with their regular 2% – 3% merchant fee for every transaction.  In addition, if the user doesn’t spend the money fast enough, they start charging a monthly fee.

The Upside

Not only is it great for credit card companies, it’s also great for the receiver of the gift.  They get to shop anywhere they like without being bound to a single store like the traditional gift card.  Some may suggest to simply give cash to avoid the activation fee, however, giving cash to a frugal person (like me) will just end up being saved or used for essential bills.  This way, the money can be spent as a gift without any guilt.

Using the card could not be simpler.  I would think a gift card like this would need to be activated somehow. With the Vanilla Mastercard however, the user simply swipes and signs, just like a regular credit card.

The Downside

If I were to look at the downside of prepaid credit cards, I would say that tracking the balance is a bit of an inconvenience.  Typically with specific store based gift cards, the balance is shown on the receipt.  Not so with prepaid credit cards which need to be tracked by the user.  The transaction will simply decline if the purchase price is greater than the card balance.  Fortunately, the Vanilla Mastercard has an online system to track purchases painlessly.

Another annoyance is the fee charged for inactivity.  For the Vanilla Mastercard prepaid credit card, they start charging $2.50/month at the 6 month mark after activation.

So, with Christmas around the corner, you may be considering a gift of a prepaid credit card (at least I am).  There are a few offerings for prepaid cards in Canada, which I have compared below.

Prepaid Credit Card Comparison

Vanilla Mastercard BMO RBC
Activation Fee $4.95/$50, $5.95/$100, $6.95/$200 $9.95 (valid for 3 years) $3.95
Monthly Fee $2.50 starting 7th month after activation $2.50 after 12 months inactivity $1.50 starting 7th month after activation
Online Access Yes Yes Yes
Anonymous Yes No No? (must be purchased in branch)
Reloadable No Yes No
Expiration 12 months from activation 3 years Yes (not indicated on website)
Cash Withdrawal No Yes No
Amount refunded after expiry: No Yes No
Extras None Extended Warranty/ Purchase Protection None
Vanilla Mastercard BMO RBC
Activation Fee: $4.95/$50, $5.95/$100, $6.95/$200 $9.95 (valid for 3 years) $3.95
Monthly Fee: $2.50 starting 7th month after activation $2.50 after 12 months inactivity $1.50 starting 7th month after activation
Online Access: Yes Yes Yes
Anonymous: Yes No No? (must be purchased in branch)
Reloadable: No Yes No
Expiration: 12 months from activation 3 years Yes (not indicated on website)
Cash Withdrawal: No Yes No
Amount refunded after expiry: No Yes No
Extras: None Extended Warranty/ Purchase Protection None

Final Thoughts

Judging from the table above, it seems that the BMO product is best if you were to purchase the card for personal use as it has a long expiry date along with extended warranty/purchase insurance .  However, as a gift the $9.95 charge is a bit high which makes it a toss up between the Vanilla Mastercard and RBC.

What are your thoughts on prepaid credit cards?  Would you buy them as a gift?

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