In the tough economic environment we've been in due to the lasting impacts of the pandemic, many Canadians are looking to pinch pennies, keep tabs on their spending, and put more money into their bank accounts.
As a result, prepaid credit cards in Canada have exploded in popularity, and in this article, we're going to cover some of the best prepaid credit cards in Canada. But first, lets go over some of the benefits and downfalls of a prepaid card in Canada.
The pros of prepaid credit cards in Canada
There is a multitude of benefits to utilizing a prepaid card rather than a traditional credit card here in Canada. Let's go over them before we get into our list of the best cards.
Prepaid credit cards are funded with money you have
Actual credit cards put the end-user in debt, whereas a pre-paid card simply allows them to spend the money they possess. Traditional credit cards can be used wisely, such as utilizing them for everyday spending to get cash back or rewards points. However, if the balance is not paid off and interest starts to accumulate, things can spiral out of control.
Prepaid credit cards have the functionality of a debit card, but more use-cases
Although many financial institutions are starting to combine chequing accounts with things like Visa Debit Cards, if your bank doesn't have this functionality, your debit card is essentially useless when it comes to online shopping. With a prepaid credit card, you can fund the card with your chequing account and make purchases online.
With some prepaid cards, you can even go as far as using direct deposit with your paycheque to fund the cards.
Prepaid cards don't require a good credit score
For those who may have gotten in a bit of trouble with a traditional credit card in the past, or simply have never built up their credit score, prepaid cards are an excellent route to go. They do not require a credit check.
The cons of prepaid credit cards in Canada
Although there are many more positives than negatives when it comes to prepaid cards, it's important we highlight a few of the downsides before we move on to the top prepaid cards in Canada.
A prepaid credit card isn't really a credit card
For those who are looking to rebuild or even start building their credit, a prepaid credit card won't help you. This is because they aren't really "credit cards."
The name mostly comes from the fact they're given out by major card issuers like Visa, Mastercard, American Express etc, but because you are funding this card with your own money you are not utilizing credit from a card issuer, and as such it will not be reported to the credit bureau.
The only real way to build your credit when it comes to credit cards is to get a traditional one and make payments on time.
Lack of rewards systems
Don't get us wrong, a lot of pre-paid credit cards have rewards built into them. However, they are not as lucrative as some major card issuers unless you pay for the premium version of some of these prepaid cards.
If you are good with budgeting and getting balances paid on time, the accumulation of cashback or rewards from a traditional credit card can be fairly lucrative. You just won't get this from a pre-paid card without some type of fee.
What are the top prepaid credit cards in Canada right now?
1. KOHO Mastercard® Prepaid Credit Card
I'm particularly glad that I spent some time researching KOHO. In my opinion, this is the best prepaid credit card in Canada, bar none. We'll speak on both the KOHO basic account, and KOHO Premium here so you can see which one fits the mold of a card you're looking for.
The benefits of a non-premium KOHO Prepaid Credit Card
- KOHO is accepted anywhere Mastercard is. Which, for the most part, is everywhere
- Even its basic plan has a cashback feature of 0.5%
- Its inactivity fee is relatively easy to avoid. Simply make a transaction or deposit at least every 6 months
- The funds are held at Peoples Trust, which is a federally regulated bank. So, if KOHO were to find themselves in a bit of hot water, you'd still have access to your capital
- There are no monthly/annual fees
The basic KOHO account is just that, basic. Send money to your KOHO card directly from your bank account and spend it on everyday purchases. However, if you're looking to take things to the next level, KOHO Premium is certainly worth a look.
The benefits of KOHO Premium compared to the basic plan
- A jump up to 2% cash back on purchases made for transportation, groceries, and dining out
- The company waives currency exchange fees
- You are allowed one international ATM withdrawal every month
- Free financial coaching from a certified financial coach
- Price protection on items purchased. If you send past receipts and KOHO finds a better deal, you'll be credited the difference
- Higher card balance limits ($40k versus $20k) and the ability to withdraw $800 per day (max $400 per transaction)
The cost of KOHO Premium is $9 per month, or $84 per year.
Is it worth it to pull out your wallet for KOHO Premium? The benefits of KOHO Premium are laid out in a way that is quite simple. With 2% cash back on groceries, transportation, and dining, you can work out your expenses to see if the plan makes sense for you.
As soon as you're spending more than $500 in these categories ($500 x 0.02 cashback = $10), it starts to make sense to consider getting KOHO Premium. When you consider all the other added benefits, it gets even more attractive.
KOHO Crediting Building program
For those who have no credit or poor credit, KOHO also offers a simple solution to get you back on track. For $7 a month, the company will open a line of credit for you. All you need to do to start the credit building (or rebuilding) process is make monthly payments on time.
For those who have bad credit, $7 a month is more than fair to get back on track.
2. Air Canada AC Conversion Prepaid Visa Card
The Air Canada Conversion Prepaid Visa Card is a solid option for Canadians who spend a lot of time abroad. Some key notes about the application process before we get on to the benefits of the card.
- The signup process is relatively easy and accessible online or at a CIBC banking centre in the Pearson Airport
- You do not need a CIBC account to sign up.
- There is no credit check required
The benefits of the Air Canada Prepaid Visa Card
- The card allows you to hold up to 10 currencies, including the CAD, USD, EUR, GBP, AUD, JPY, HKD, TRY, CHF, MXN. This is why we've mentioned that it's perfect for those who spend time abroad
- The card has zero conversion fees when you make a purchase with a foreign currency, simply the exchange rate
- The card has no annual or monthly fee
- You get 1% cash back on all purchases. CIBC states this is for a limited time and will not be available after October 31st 2022.
- The card has a large maximum balance of $20,000 Canadian dollars.
- The first ATM withdrawal of each month is free
However, there are some pitfalls of this card, which are primarily added fees for particular uses.
The downfalls of the Air Canada Prepaid Visa Card
- If you lose the card, it is $25 to replace
- Foreign currency withdrawals from an ATM after your first free one can quickly get expensive. For example, to withdraw Mexican Pesos is $49.95, and to withdraw Japanese Yen is $349.95
- If you use a currency not included with the card, there is a 2.5% charge for foreign transaction fees
Overall though, if you pay attention to the fairly basic terms and conditions and avoid any added fees, this is an outstanding prepaid card here in Canada.
3. STACK Prepaid Mastercard
We've written about the STACK card in our article on the best virtual credit cards in Canada. It's a unique prepaid card here in Canada, one that has little downside to owning and provides a ton of benefits.
The benefits of the STACK Prepaid Mastercard
- Much like KOHO, STACK is issued by the Peoples Trust Company, which is a CDIC member institution. This means in the event the institution fails, your insured funds for eligible deposits are covered up to a max of $100,000
- Over 140 merchants have teamed up with STACK to offer cash back bonuses
- The card has other unique bonuses like dollar amounts of gasoline, coffee, groceries, and even the potential for 20% cashback on your next trip
- If you spend over $350 per month on the card, FX fees are waived
- You can instantly freeze your card if you suspect fraudulent activity
- The card supports digital wallets like Apple Pay, Samsung Pay, Fitbit Pay, and Google Pay
- Free bonus access to news and educational content to help you take control of your finances
- The ability to save and store receipts
In terms of downsides with the STACK card, there are next to none. The only downfall of the prepaid card would be that because it is not a traditional credit card, you don't build credit using it. This, and maybe the fact you have to pay FX fees if you don't spend $350 per month.
4. MogoCard Visa Platinum Prepaid Card
The Mogo Visa Platinum card is quite possibly the most unique card on this list. Not only does it encourage a greener future by executing particular initiatives based on transactions (we'll get to that below), but it also rewards you with Bitcoin sats with every transaction.
The benefits of the Mogo Visa Platinum Prepaid Card
- The company offers free monthly credit score monitoring, along with fraud protection
- The company pays you Bitcoin sats for every transaction and offsets the CO2 emissions from mining that Bitcoin
- For every transaction you make, Mogo promises to plant a tree
- The company keeps you alert about your spending habits via push alerts, along with the ability to set budgets with top-up transfers and spending goals
- The ability to freeze your card with a single click in the event it's lost
When it comes to the downsides, Mogo does have a few. However, they can be pretty easy to avoid.
The downfalls of the Mogo Visa Platinum Prepaid Card
- The card has an inactivity fee of $1.99. Easily avoided by simply using the card more than once per year
- The card charges $1.50 per ATM withdrawal inside of Canada. If you're outside of Canada, it is $3
- Foreign exchange fees are unavoidable and cost 2.5%
Overall, this is a strong prepaid credit card if you're looking to not only collect environmentally friendly pieces of Bitcoin for every transaction you make but help the environment with every tap, as Mogo promises to plant a tree for every transaction, no later than 120 days after the month has ended.
5. Wealthsimple Card
Unless you've been living under a rock, you probably know that Wealthsimple has started to do a lot of things. From the stock market to cryptocurrencies and now prepaid cards, a Wealthsimple Card is an excellent option for those looking to gain some extra cashback on their purchases.
The Wealthsimple Card is a simple prepaid card. Let's look over the benefits.
The benefits of the Wealthsimple Card
- There are no annual fees
- The card will not impact your credit score
- You earn 1% back on all cash purchases
- It works with many other popular payment platforms like Apple Pay, Google Pay, and Samsung Pay
- Includes an unlimited amount of free e-transfers
- A really handy feature on Wealthsimple Cash when used in combination with the Cash App is its ability to split different purchases and send out requests for money to others who are using the card
- Daily limit of $500 per ATM withdrawal and $1000 per day
In terms of pitfalls, there really is none. For a card that is free to apply for, has no fees, and gives you 1% cash back, it's hard to complain. Not to mention, you can take your 1% cash back and start investing it in your TFSA or RRSP.
Why we didn't include the BMO Prepaid Mastercard
In our opinion, there are enough prepaid cards here in Canada that you don't need to be paying activation fees or annual fees. The BMO Prepaid Mastercard offers virtually no perks, and charges a $6.95 annual fee.
Unless you are absolutely dead set on utilizing a major bank for your prepaid card, we see little reason for people to utilize this one. There are no rewards, there are no travel bonuses, and you cannot hold multiple currencies. This one is about as plain as it gets, and they charge an annual fee to boot.
We also did not include the Vanilla Prepaid Mastercard or Visa in this list - read more on that here.
Overall, these are what we feel are the four best prepaid credit cards in Canada
We could have added more credit cards to this list. We did notice a multitude of articles listing 7+ cards. However, once we start paying annual fees or activation fees to prepaid card issuers, we find few benefits to using them.
The ones that are listed here have a few things in common. They've got some pretty unique rewards, no fees to use or activate the card, and all are from trusted organizations here in Canada.
Canadian Prepaid Credit Card FAQ
How do prepaid credit cards work?
A prepaid card is typically tied into a particular credit card network. For example, if you have a Visa prepaid card, you can use it anywhere that accepts Visa. The same can be said with Mastercard.
From there, these cards practically operate like debit cards. The card is funded with the money you currently have, typically via e-transfer or in the case of some cards (not listed in this article) you buy them pre-loaded and pay a fee to activate them. So in reality, it's not a "credit" card at all. The name is a common misconception.
The benefits, as I listed at the top of this article, are the fact you can use a prepaid card online to purchase goods. This is more difficult with a debit card unless you have something like a Visa Debit.
Where can I get a prepaid card?
Because prepaid cards don't require any sort of credit check, they can be bought or applied for in a wide variety of stores. For example, if you're looking to buy a pre-loaded Visa, Mastercard, or even a McDonald's card, somewhere like Walmart or even gas stations will likely have exactly what you need.
When you're talking about prepaid cards from major institutions, you'll likely need to apply either online or in the branch. Whichever is most convenient for you.
Should I be getting a prepaid card?
Depending on the type of card, this is a fairly personal question. For example, a prepaid gift card for a family member as a birthday present is a pretty cut-and-dry situation. However, if you're looking to choose between some regular credit cards or a prepaid card, you may decide to go to the prepaid route if:
- You don't have a good enough credit history or credit score to qualify for a traditional credit card
- You're new to Canada and wouldn't qualify for a card yet
- You're getting one for your child to fund things like their allowance
- You're interested in the cashback rewards of some of these cards and find them more useful than using your debit card
Should I get a secured credit card instead?
It's possible that if you do not have the credit quality or credit history to qualify for a traditional credit card your bank or financial institution has given you the option of a secured credit card.
A secured credit card is similar to a prepaid card in a few ways. The key similarity is the fact you need to put money down initially to use the card. The difference being your money is being used to fund the card in the case of a prepaid card, and it's being used as a security deposit in the case of a secured credit card.
If you're looking to rebuild poor credit or get started building credit for the first time, you may want to look into a secured credit card instead. This is because this is a traditional "loan" style credit card, which will have a credit limit and interest rate. If you utilize it and pay at least the minimum balance when it's due, you'll start to build or repair your credit profile.