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I'm interested in using prepaid cards as a way to minimize the damage that I might sustain if (for instance) a major retail company is hacked and my credit card information is stolen.

Does the following strategy make sense?

  1. Buy a prepaid, re-fillable card.
  2. Only use this card to make purchases.

This way, even if someone gets a hold of the card information, I know they can only use as much money as I've put on it.

There are two things I'd like to accomplish with this:

a. minimize the risk of making purchases online or with retailers (as I've explained), and b. still build up credit.

The point being, I would still re-fill the card using my ordinary credit card, so each time I pay back this balance to my credit card account, I can still be building up my credit. (Is this how credit-building works?)

My hope is that this strategy ensures there's only one place where my credit card number can be stolen--the route via which I refill my card--so this protects my actual credit card number, which I view as much more valuable than the number of some prepaid card.

Does this make sense?

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    Which country? Also, for on-line purchases, some credit card websites allow you to generate a one-time credit card number with a limit that you choose, and you can use this number on a site that you do not trust.
    – Dilip Sarwate
    May 3, 2015 at 15:26
  • what happens if you lose the card or it is stolen.
    – mhoran_psprep
    May 3, 2015 at 15:57
  • When you refill a prepaid card using your credit card, is it treated as a cash advance (interest charged from Day One till Day Done) or purchase (in the US, at least, no interest if the full balance shown as due on each monthly statement is paid by the due date)?
    – Dilip Sarwate
    May 5, 2015 at 14:34

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I think that a prepaid card would have more risk for loss than a traditional credit card.

I've had a various credit cards for about the last 20 years. In all that time, I haven't lost a penny due to fraud. Of course, I've had some fraudulent charges show up, I've had merchants charge too much, and I've had my card number stolen. In every case, my bank has been able to undo any damage and issue me a new card number, if necessary. I really don't spend any time worrying about credit card security, other than checking my statement each month. Security is the bank's problem, not mine.

Prepaid cards are often anonymous. If you are using an anonymous card, how can the bank verify that you are the owner of the card and that you did not make a certain charge? I think, with this type of card, you are very much at risk for losing whatever you have loaded on the card to fraudulent charges.

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Most cards, through most banks, already have limits on how much you might be liable for if the card is misused, and have mechanisms for "charging back" unauthorized transactions. I'm not sure using a prepaid card would significantly improve your security.

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Along with the commercials for "frog" protection from Discover, most credit card issuers provide fraud protection and zero liability for any unauthorized purchases. As was mentioned in one of the comments, many issuers also will allow temporary "virtual cards" that can be used in places that may not appear to be as reputable.

Depending on the type of pre-paid card you are using, you're likely paying some form of a fee for it, and you're certainly not taking advantage of the benefits that a credit card can provide, cash back being a big one. There are no annual fee cards out there that get 2% cash back on every purchase.

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