The Pros and Cons of Using a Crypto Rewards Card

Are you considering a prepaid crypto debit card? Read this first.

Crypto debit cards are available from several top crypto exchanges. Some platforms have also launched crypto credit cards, but the prepaid debit cards are more common and easier to sign up for.

Many of these prepaid cards earn rewards, just as you might with a credit card, and they don't usually charge annual fees. However, there are some big differences you should know about before signing up.

Pros of crypto prepaid debit cards

Here are some of the benefits of crypto debit cards that you should know about.

There's no credit check

When you apply for a regular credit card, you'll need to submit your personal information and allow the card issuer to do a credit check to pull your credit information. If you don't have a great credit score, you may not qualify for the best credit cards with the most valuable rewards or perks.

In contrast, your credit score is not a factor when qualifying for a prepaid debit card since you aren't accessing any credit. Instead, you'll need to top up your balance as required.

It's easy to convert your crypto into spendable money

One big attraction of crypto debit cards is you can use your cryptocurrency assets to top up your balance. Given that it can be a hassle to withdraw money from an exchange into your bank account, this lets crypto investors spend their assets more easily.

However, be aware there may be tax implications when you spend your crypto. You need to keep track of every instance where you trade or use your crypto. In addition, if you are a buy-and-hold investor, you may not want to use your cryptocurrency investments for day-to-day spending.

You can earn rewards

The ability to earn rewards for spending you would do anyway is a prime reason people sign up for credit cards. However, credit cards can come with annual fees and the temptation to spend money you don't have, leading to debt.

These prepaid debit cards let you earn rewards without owning a credit card. The rewards vary from platform to platform; for example, I earn 2% back on most of my spending with a Crypto.com card. There's no annual fee, but I do have to stake (tie up) about $400 worth of Crypto.com's token, CRO. I should point out that my CRO has fallen in value since I bought it, which is a factor you need to consider.

Other exchanges do not require you to stake coins to qualify for the card or get higher rewards rates. It's worth shopping around to find the card that is best suited to you.

You may get additional perks

Like rewards credit cards, prepaid crypto debit cards can give you additional perks. For example, I qualify for a rebate on my monthly Spotify subscription. Different staking levels on Crypto.com earn you different cash back rewards and other benefits.

Don't let the perks seduce you into going for the wrong card, though. If you can get a better rewards rate with a different platform, that may be the better deal -- especially if you won't make full use of the extra benefits.

Cons of crypto prepaid debit cards

There are also some negative aspects you'll need to consider before getting a crypto debit card.

You don't get the same protections you'd get with a credit card

When you sign up for a credit card, you usually get a raft of additional fraud and purchase protections. It is easy to take them for granted, but prepaid debit cards may not offer the same perks.

For example, if you pay for an item with your credit card and it is stolen or damaged shortly afterward, you may be able to get your money back. Similarly, you'll usually have zero liability for any fraudulent charges.

In contrast, you're unlikely to get purchase protection with your prepaid debit card. You'll also need to read the terms and conditions carefully to understand what fraud protection is in place. The card has not been issued by a bank or credit card provider, so you can't just assume you'll get the protections you're used to.

For example, my Crypto.com visa debit card does offer some fraud protection -- it says that I can file a chargeback to get the money back. That isn't the same as zero liability. And I'd have to freeze my card to file a chargeback, and I might have to pay a fee to get a new card issued.

The card may not be universally accepted

Many of the cards offered by crypto exchanges are Visa debit cards and claim to work anywhere that you can use Visa. However, in my experience, this has not always been the case. Most recently, my payments to Rappi stopped working and have not yet restarted.

In addition, cardholders don't earn rewards on all their spending. For example, with Crypto.com, payments to everything from graphic designers to libraries and souvenir shops may not earn crypto rewards.

You won't build your credit history

Using a normal credit card can help to build up your credit history, which in turn contributes to a higher credit score. A history of making on time payments shows you can handle credit responsibly, and is a big factor when calculating your score.

Since this is a prepaid debit card, you aren't actually borrowing any money. This does mean you can't run up debt you can't afford to pay or damage your credit by missing a payment. But if you want to build up a payment history, you'd be better opting for a secured credit card. To open a secured credit card, you need to put down a refundable security deposit to make up for your low credit score.

You need to keep it topped up

Finally, if you open a prepaid debit card, you'll need to make sure there is enough money on the card to cover your purchases. If you use it to sign up for automatic monthly payments, you'll need to keep an eye on your balance.

Crypto debit cards can offer a lot of advantages, but don't get one just because it has the word "crypto" in the name. Read the fine print and compare the card to a traditional credit or debit card to make sure you're getting the best possible deal.