Prepaid credit cards

Prepaid cards offer the convenience of a credit card without the borrowing – read our guide to find out how they work

Prepaid cards are much like standard credit or debit cards, with the key difference being that you need to pre-load money onto the card before you’re able to spend.

Prepaid cards can be a useful way of budgeting, as well as paying for things in shops or online, or withdrawing money at a cash machine. The cards are normally issued by MasterCard, Maestro or Visa, and can be used wherever these payment methods are accepted.

They work by simply transferring money from your bank account or loading the card with cash at any Post Office or shop with PayPoint or Payzone facilities. As you can’t borrow money you don’t already have on the card, it’s impossible to overdrawn or get into any debt.

The top prepaid cards on the market

Company	Type	Fee	Details	Charges
	Travel	Cost of card: Free Monthly Fee: Free	No ATM fees No point of sale fees No monthly account fees Free loading	Caxtons's own determined rate	Proceed
	Travel	Cost of card: Free Monthly Fee: Free	No fee for spending abroad Top up online or over the phone Pin and signature protected Supported by Global Emergency Assistance available 24/7	ATM Fee: UK £2.50, USA $4.50, EU €3.75, International $4.50 Currency conversion: Travelex's own rate determined daily	Proceed
	Bad Credit	Cost of Card: £4.95 Monthly Fee: £9.95	No Credit Check Credit building facility through Creditbuilder Direct Debit Facility Individual Account Number and Sort Codes for each client Additional Cardholders Embossed Card Standing Order & Bill Payment facility Alternative PAYG option available	No charge for purchases ATM Withdrawal £0.50 No transaction fees	Proceed
	Bad Credit	Cost of card: Free Monthly fee: £12.50	An accompanying bank account with direct debits No charge for bounced direct debits Never be overdrawn No credit checks necessary Pay cash into your account at Payzone outlets Member of the FSA Compensation scheme	£5 for additional card £0.50 ATM Withdrawal 2.75% per overseas transaction £2.25 per overseas ATM Withdrawal £25 Account setup fee - first months fee inclusive.	Proceed

Benefits of prepaid cards

Prepaid cards can be really useful if you’re travelling overseas. You pre-load them with cash before you go away, making it harder to overspend than if you’re only using a debit or credit card, which could also be subject to expensive charges.

Prepaid cards often come with competitive foreign exchange rates, some of which are better than the rates on the high-street.

People that may benefit from prepaid cards include:

• Students wanting the convenience of a credit card without the risk of running up debts
• Parents looking for a budgeting tool for their teenage children
• People unable to get a credit card or bank account and are looking to build their credit rating
• People who have just moved to the country and have found difficulty opening a bank account or getting a credit card

Cost of using a prepaid card

One of the downsides to prepaid cards is that they’re often subject to all sorts of charges which can vary significantly from card to card. Some of the fees you might see include:

• A fee of £5 to £10 to buy the card (some cards are free)
• A fee of 2% – 3% each time you load money onto the card
• Transaction fees – each time you use the card to buy something or withdraw cash
• Monthly fees – some cards charge a fee of £1 to £6 for having the card each month
• Extra fees if you use the card overseas and replacement card fees if the card is lost or stolen
• Upgrade and cancellation fees
• Fees to transfer money off the card

Prepaid cards vs cash and debit and credit cards

Prepaid cards are somewhat safer than debit and credit cards as they’re not linked to your bank account or credit card, making them much less open to fraudulent use.

If a debit or credit card is still in your possession when you’re the victim of fraud, you’ll get back 100% of any losses. If you lose your debit or credit card or it’s stolen, the most you can be liable for is £50 and even this fee is usually waived.

Unlike credit cards, most prepaid cards unfortunately don’t fall under Section 75 of the Consumer Credit Act – this makes the credit card provider jointly liable if something goes wrong with a product or a service you’ve paid for by credit card and costing more than £100 and less than £30,000.

You also won’t earn any interest on any money you load on to a prepaid card. However, as you can’t borrow money on a prepaid card, you won’t incur any interest or overdraft charges either.