Choosing Between a Prepaid and Contract Cell Phone Plan

Do you and your spouse have separate cell phone plans? Is your child getting a cell phone for back-to-school this year? If so, you should be looking into the various prepaid and family plan options to find the one that will save you the most money.

There are three main types of cell phone plans: pay-as-you-go, prepaid and postpaid (the typical contract plan). With pay-as-you-go plans, you purchase a bucket of minutes that is drawn against every time you use your phone. Prepaid plans work like regular monthly postpaid plans, but without the commitment and you pay for all usage in advance.

There are reasons to go with each type of plan, depending on how often the members of your household use their phones and how selective they are about the type of phone they carry.

Pay-as-you-go plans

If you’re looking for an emergency-only phone, a pay-as-you-go plan is the perfect option. You purchase a bucket of minutes and then only pay for service on the days that the phone is used. You can pay by the minute or you can get unlimited access for the day. For instance, T-Mobile offers a $3 per day unlimited talk, text and data option that delivers the first 200MB at 4G speeds for Android phones.

Pay special attention to the expiration dates on prepaid cards. High value buckets will last months, even up to a year before expiring. Lower priced buckets expire in as little 30 days, and any unused value will be lost.

You’ll also pay a higher rate than you would with the monthly plan, if you use the phone frequently. For instance, on T-Mobile’s $3 per day plan you’d be paying more than $90 per month, or $20 more than T-Mobile’s 5GB unlimited prepaid plan.

Here’s how the pay-as-you-go plans compare:

Prepaid plans

For those that don’t like to be tied to a contract or want to be surprised by a chatty teen at the end of the month, a prepaid plan is a good fit. There are plans that range from Tracfone’s talk-only $9.99-per-month 50-minute plan to MetroPCS’s $50 unlimited talk, text and 4G LTE data for Android smartphones. There’s really something for every budget—and you’ll save over a postpaid plan.

You will even find a few great prepaid smartphone options in the iPhone 4S and HTC One V, though most of the latest phones aren’t available for prepaid plans. No Samsung Galaxy S III or HTC One X, for instance.

Before purchasing a prepaid phone for a child, consider whether you’ll want to use the carrier’s parental controls—something not available for prepaid plans. You can use parental-control apps for Android devices, but not for regular cell phones. And if you go with a MetroPCS or another smaller prepaid carrier, check the coverage map to make sure there’s ample coverage wherever you and your family will use your phones.

Here are the best options under $30 and $60 for the major prepaid and national carriers: 

Family plans

If you want the latest smartphones, a postpaid family plan is the way to go. Plus, these plans come with the option of carrier-based parental controls, like location tracking and driving controls, which can be helpful to parents with older children, and content filtering, talk and texting caps and time-of-day restrictions for younger kids.

Here’s how the four major carriers stack up: