Prepaid cards: the uSwitch guide

Prepaid cards are becoming increasingly popular - they offer the convenience of a credit card, but rather than borrowing, you spend money you have pre-loaded on to the card.

Read our guide to find out how they work and decide if a prepaid credit card is right for you.

For more information about some of the terms we use, click on the highlighted words, or go to our glossary.

Prepaid cards are just like a credit or debit card, except the money you spend is pre-loaded onto the card - much like a gift card or a mobile phone top-up.

You cannot borrow money on a prepaid credit card, so you can't go overdrawn or get into any debt.

You can use a prepaid card to pay for things in a shop or online, or to withdraw money at a cash machine - just like with a credit or debit card.

Prepaid cards need to be loaded with money before you can use them - you can do this by transferring money from your bank account or you can load your prepaid card with cash at Post Office branches, and at shops with PayPoint or Payzone facilities.

• They give you control over your spending.
• Prepaid cards are convenient and easy to use.
• There are no credit checks if you want to take out a prepaid card.
• Prepaid cards can be used abroad, and often have good exchange rates.
• Prepaid cards are safe and secure

• Prepaid cards can be a real asset if you are travelling overseas. You can pre-load them with money before you go away and it's harder to overspend than if you're relying on credit card (which could also be subject to expensive charges). Plus, prepaid cards often have competitive exchange rates that could be better than those of high-street foreign exchange offices. If a family member is going overseas, they can also provide real peace of mind because you can load money on to the prepaid card for them while they are away, meaning they'll never be stuck without money.
• Students who want the convenience of a credit card, without the risk of running up debts.
• If you are a parent, you might also find prepaid cards are a good option for children & teenagers - they are safer than cash and could help to teach your child about budgeting. If they are going away on holiday or a gap year they are a great idea too.
• People with a bad credit rating who are unable to get a credit card or bank account.
• People who have just moved to the country who may have difficulty opening a bank account or getting a credit card.

Prepaid cards are normally branded as MasterCard , Maestro or Visa and can be used anywhere that accepts these cards, for example, online, in shops and banks and to withdraw cash at cash machines.

Prepaid cards are subject to charges, and these can vary significantly, so it pays to be aware of these fees and compare the different pre-paid cards on the market. Some of the fees that you might see on a prepaid credit card are:

• A fee of £5 to £10 to buy the card (although some cards are free).
• A fee of 2 or 3% each time you load money on to 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.
• Additional fees if you use the card overseas.
• Replacement card fees if the card is lost or stolen.
• Cancellation fees.
• A fee to upgrade from a single use to reusable prepaid card.
• Phone calls to contact customer services might be expensive.
• Fee to transfer money off the card.

When you compare prepaid cards with uSwitch, all the fees are clearly displayed so you can see which is the best prepaid card for you.

Yes. As prepaid cards do not let you borrow money, there are normally no credit checks (as a result no credit search is registered).

There are some prepaid cards on the market that may even be able to improve your credit score.  The cashplus prepaid MasterCard® with creditbuilder could help to strengthen your credit rating by giving you an interest free loan, equal to a year's worth of monthly fees. You then make monthly repayments towards the loan to repay the annual fee - which could help to boost your credit rating by showing lenders that you are a responsible borrower. Find out more and apply now.

If your card is lost or stolen the provider will be able to cancel the card, and most prepaid card providers will also transfer any funds you have on the card to a new one - making it much safer than cash - although there may be a small charge for this service.

Like debit and credit cards, to be able to use a prepaid card you need the card and the PIN number. Prepaid cards are safer than debit or credit cards as they are not linked to your bank account or credit card limit so the amount of money you can lose to fraud is limited to the amount of money loaded onto your prepaid card. However, with a debit or credit card, if the card is still in your possession and you are the victim of fraud you will get 100 per cent of any losses back. If you lose your debit or credit card or it's stolen the most you can be liable for is £50 and this is normally waived.

With most prepaid cards you also don't get Section 75 protection (S.75), like you do with credit cards and some debit cards. When you buy something costing more than £100 and less than £30,000 with a credit card, S.75 means you can claim a refund, for example if goods aren't delivered or if they aren't as they were described.

No. You 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 any overdraft charges either.

There are dozens of prepaid cards on the market. You should choose the prepaid card that has the lowest fees for how you will use it. For example, if you will be making lots of transactions choose one which does not charge for transactions. If you will use the card infrequently look for one without a monthly fee. If you want to use your prepaid card overseas, go for one with low or no charges for foreign usage and good exchange rates.

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Chip and PIN
Prepaid cards use the same security system as debit and credit cards called Chip and PIN. Instead of relying on an outdated magnetic strip and a signature on the card Chip and PIN uses a microchip in the card and a 4 digit security number to make it more secure.

Credit  check
Each time you apply for credit lenders may check your financial history with a credit reference agency.  

Exchange rate
The exchange rate determines how much foreign currency you get for each pound you load on to a foreign currency prepaid card.

Fees and charges
Prepaid cards charge a wide range of fees, for example, you will normally be charged to buy the card, load money on to the card and when you use it to make purchases and withdraw cash. Choosing the wrong card could cost you dearly in charges. Some cards also charge a monthly fee. See 'How much does it cost to use a prepaid card?' above, for more details of typical fees and charges.

Fraud protection
Unlike credit and debit cards you don't have the same protection against fraud if you use a prepaid card. Check if the prepaid card provider will refund money you lose to fraud.

Loading
This is the term used for putting money on to a prepaid card. You can normally transfer money from a bank account, debit card or credit card, or with cash at the Post Office, and Payzone and Paypoint retailers.

Maestro
You can use Maestro prepaid cards at any cash machine or retailer that accepts Maestro cards - Maestro is the name for MasterCard debit cards.

MasterCard
MasterCard prepaid cards can be used at cash machines and retailers that accept MasterCard - MasterCard is a global card payment system.

Online
Prepaid cards can be used online to make purchases in the same way as debit and credit cards. As prepaid cards are not linked to a bank account or credit card the most that could be lost to fraud is the amount of money loaded on the card.

PIN - Personal Identification Number
A four digit security number you need to be able to make purchases using debit, credit and prepaid cards and to withdraw cash.

Visa
Visa prepaid cards can be used wherever you see the Visa sign to make purchases or withdraw cash. Visa is a global card payment system.