What do you do if you can’t get a credit card but you want to be able to make payments online? You get a prepaid card. These clever things have all kinds of uses -  they’re good for teenagers, people with poor credit, budgeting and using on holiday. They can be a little complicated though, so read on for a comprehensive guide.

• Best card as a replacement bank account is the Kube card with online banking and the lowest loading fees
• The best cards for discounts is the BaBee Prepaid Card
• The best cards for purchases in the UK are the Travelex Cash Passport and the Prime payment card
• The best cards for using abroad are the FairFX.com Mastercard and the Bread FX Euro Prepaid Mastercard
• Find out what prepaid cards are and how to find the best for your needs
• Compare prices at a glance with our Prepaid Card comparison table

There are a lot of these cards on the market which can be confusing, so we’ve put together a simple guide to choosing and using a prepaid card.

What are they?

Prepaid cards are payment cards that you can use in retail outlets and on the internet that you pre-load with money.

It’s just like a pay as you go mobile, once you’ve talked away all your credit, you simply can’t phone any more. It’s the same with these cards. You load them up with as much as you can afford. Then once you’ve spent it all, that’s it, you can’t spend any more.

This way it’s impossible for you to get into debt because you can’t spend more than you have on the card.

However, the downside to these cards is that unlike a pay-as-you-go phone, prepaid credit cards will often charge you a fee every time you top up, buy things in a shop or take out cash with them.

Because of these charges, prepaid cards are best used for internet transactions and spending abroad. They’re also really useful if you can’t get approved for another card and if you don’t have a bank account. In fact, if you don’t have a bank account they’re essential as you can often get your salary paid into them.

Where can you use them?

It depends on the card, and this is something you should definitely take note of when choosing which prepaid card you want. Most of the cards are MasterCard, Maestro, Visa Electron or Amex which are all widely accepted, just like any normal credit or debit card.

You can make cash withdrawals at an ATM (although there is a small charge for the majority of cards so try not to). You can also shop online or get your wages paid into your prepaid card account.Some prepaid cards offer a standing order service, too.

Will I be approved for a prepaid card?

Your application for a prepaid credit card will not be refused on the grounds of your credit rating. So even if your credit rating is bad, you will be able to get one. This is because a prepaid card is not a credit card. You are not borrowing any money and so there’s no risk involved for the card provider. This means you can be accepted instantly.

However, you will need proof of a regular address when you apply for many of them. If you can’t provide this you may find you’re offered a card with limits on how much you can top up or your application may simply be rejected.

You don’t necessarily have to be over 18 to use a prepaid card. The minimum age varies from company to company and, again, because there’s no risk involved to the company, they’re normally happy to let anyone over the age of 10 use one.

What are the benefits of using a prepaid card?

There are lots of benefits to using a prepaid card, even though they are very complicated. However, we can’t stress enough that you should read the terms and conditions of any card that you are considering signing up for to check that it is compatible with your needs. Here are some of the benefits of using prepaid cards:

• Accessibility

Almost anyone can get one. If you have been refused for other credit cards because of a bad credit rating you should be able to get a prepaid card. The only thing that might stop you being approved for one is the lack of a stable address or an inability to prove who you are.

• Safety

If you have the money to spend, it’s much better to carry around a card than lots of cash. It makes you less vulnerable. If you carry a lot of cash and you lose it or it’s stolen from you, you can’t get it back. But a prepaid credit card has a minimum level of insurance that will protect your balance if it gets lost or stolen. You can also put a stop on the card as soon as you realise it’s gone and and if you do it quickly enough your money will be safe.

Like any other card, you will have a chip and pin system for it which will also protect your balance. If you do lose your card or it’s stolen, getting a replacement is fairly easy and should only cost a little.

• Budgeting

Prepaid credit cards are a great way of controlling how much you and your family spend. All you have to do is set up a monthly standing order to your prepaid card account and do not top up any more in between.

This way you will have a certain amount to spend each month, and when it’s gone, it’s gone. By sticking with your card, you physically won’t be able to spend more as the card will not let you complete a transaction if you don’t have enough money. If you’re trying to get out of debt this is like magic!

If you have children you can send them off with their pocket money on their card and that will mean that they can only spend as much as they have. You can also be assured that they won’t lose the money, even if they lose the card.

• Travel money

A prepaid credit card is extremely useful when you’re travelling or on holiday. Firstly this is because a large proportion of credit card fraud happens abroad. If you are using your normal credit card or debit card you stand to lose a lot of money. Fraudsters can empty your accounts or rack up huge credit card bills in your name.

However a prepaid card is not linked to your bank account so you are protected. If you use a prepaid card the maximum you can lose is the remaining balance on your card. This is also true if your card gets stolen.

There are several prepaid cards that are specifically for use abroad and allow you to spend abroad without foreign currency commission or transaction charges. These are great money-savers.

A prepaid card will save money as it will limit your spending abroad. With exchange rates it’s sometimes difficult to know exactly how much you’re spending, however the card will only let you spend as much as you have budgeted. Using a prepaid card on holiday will therefore help you keep tabs on your spending and you won’t have to come home to a horrible bill.

• Transfer money abroad

A prepaid credit card is also a great way of transferring money abroad to relations or friends. Transferring money through your bank or a money transfer organisation can be costly, however with a prepaid credit card, the funds don’t actually have to move. You can have several cards that all debit from one account which other people can then use with their own individual pin.

So if you have a child who is away from home and needs money, all you have to do is put more money into your card account and they can spend it directly with their card. This also works for giving presents to relations abroad. All you have to do is send them the card in the post and once they have received it you put the money in the account. This way the only charges you have to pay are the transaction fees.

• For younger children who wouldn’t otherwise have access to Visa or MasterCard

Child accounts rarely offer cash or debit cards that are as widely accepted as Visa or MasterCard. A prepaid credit card allows your child access to these services without them being able to run up huge debts, or put your bank accounts at risk.

What are the charges?

Naturally, the prepaid card companies aren’t letting you use their cards out of the goodness of their hearts. Charges will apply. But the charges vary hugely from provider to provider and you should always read up to make sure you’re getting what you pay for. Here are a few potential charges you should look out for and consider:

• Card application fee – most companies charge this. Try to find one with a low cost, or free such as the FairFX.com Mastercard.
• Monthly service charge – check if the company asks for one and find out how much it is. Also find out what you get for this charge e.g. a helpline or added security or internet services.
• Top-up charges – the majority of companies will charge you for loading money onto a card in certain ways. Check to see if they charge for cash loading or bank transfers.
• ATM withdrawals ­– the companies charge you for making cash withdrawals so beware. Always check whether or not it costs more to withdraw money abroad.
• Transaction charges – make a note of whether or not the provider charges your account for store and online purchases, and if the costs are higher if you purchase abroad.
• Card renewal – ask the company if they charge you a fee to renew the card once it has expired, or if they charge for replacement cards in the case of it being lost or stolen.
• Minimum top-up – this isn’t a charge, but if you have to put on £100 each time you renew but you don’t intend to spend that much, then choose another card.
• Customer helpline – is it a premium rate number or is it charged at local rates?

Which card should I choose?

Frankly, the prepaid market is baffling. There are so many cards with different charges for transactions, cash withdrawals, top-ups and purchase and monthly fees; and this makes it very difficult to compare them.

As is often the case, it is quite difficult to say which is best because whilst one card may come out on top in terms of transaction fees, it can then let itself down with monthly fees or a high initial charge – but to give you a hand and point you in the right direction here are the Moneymagpie picks.

Essentially the first thing to do is think about what you want to use the card for and then pick one that meets your needs. We’ve had a go at sorting some of the cards that are currently on the market into different categories, according to what they are good for:

For all the following links, if you get a screen asking you to enter your details, all you have to do is untick the box in the bottom left hand corner and then press the ‘continue’ tab in the bottom right hand corner. This will take you through to the information about the card without you having to give out any personal details.

Alternatively, go straight to our table here for a direct comparison of some of the best known prepaid cards around.

The best card as a replacement bank account

• Kube card

This card is great if you don’t have, or don’t want to have, a traditional bank account. It is the only one to offer an online banking service and all your transactions can be sent to your mobile phone.

This is particularly helpful if you are giving the card to a family member as you can monitor the spending. It also adds extra safety if you lose the card. The Kube card also has the lowest transaction fees and the lowest loading fees (the cost of putting money on the card).

• Purchase fee: £14.95
• Monthly fee: £2.99
• Transaction fees: 25p
• ATM withdrawal: £1.25 in UK and £2 overseas

Best cards for spending in the UK

Prime payment card

• Purchase fee: £3
• Monthly fee: £2 or free when used as a reloadable card
• Transaction fees: 2% (min 50p max £1)
• ATM withdrawal: 75p in the UK, £1.50 abroad
• Loading fees: 2% (min 80p), or 49p per load at the Post Office (or free if you load more than £100 at the PO)

Also worth a look:

Splash Plastic Maestro card

• Purchase fee: £5
• Monthly fee: There is an annual fee of £4.95
• Transaction fees: 2.5%
• ATM withdrawal: £1.50 plus 2% surcharge on withdrawals over £50
• Loading fees: Bank account and wage transfers are free, 30p for every £10 topped up at the post office or PayPoint and 2.5% (min £1.50) for credit/debit card transfers.

Best cards for using abroad

Cards for International travel differ slightly from standard prepaid cards. You often need to choose which currency you want your card to function in – usually you can only choose from euros, sterling or US dollars. You can then pay for free in the currency you choose, avoiding exchange rate commission and hefty fees imposed by other card companies.

You still load the card in sterling and then your balance is exchanged at the current rate. These cards are great if you are going away, but they are not as suitable for domestic use as others (unless you choose a sterling card) because you can incur heavy fees.

Bread FX Euro Prepaid Mastercard

The Bread FX Euro Prepaid Mastercard has some of the best rates amongst currency cards. You can only load it with Euros so it’s perfect for anyone going on a holiday in Europe.

• Purchase fee: It’s free to sign up.
  • There is a minimum initial load of £100.
  • The minimum load after this is £20.
• Transaction fees:
  • In Euros are free
  • In other currencies a €2 fee applies
  • An exchange fee of 2.5% of applies to all non-Euro transactions.
• ATM withdrawals:
  • In Euros are charged at €1.50
  • In other currencies are charged at €2, along with the 2.5% non-euro transaction fee
• Loading fee:  It’s free to load.

FairFX.com Mastercard – ‘Anywhere Card’

• Purchase fee: £9.95 normally but free when you apply here.
• Monthly fee: Free
• Transaction fees: 1.5% on all transactions including ATM withdrawals
• Loading fees: Free, unless paying by credit card, which are charged 1.5%
• Replacement card: £6

The FairFX Anwhere Card is a really good deal. It has the most competitive transaction fees and offers business exchange rates which means you get more foreign currency for your pound.

Caxton FX Mastercard

Ideal for travel: there are three cards, the global, dollars and euro, loaded with sterling, US dollars and euros respectively. Exchange rates are good and are fixed when you load the card. This means you could get more for your money if the currency is gaining against the pound.

• Purchase fee:  Free.
• Monthly fee: Free.
• Transaction fees: 2% on over the counter UK cash withdrawals, 2.5% on foreign currency transactions.
• ATM withdrawal: The global card charges £1.50 in the UK, but is free elsewhere. The other cards charge €2 or $3 respectively. If the dollar or euro card are used outside the US or the euro zone, a 2.5% fee is levied.
• Loading fees: Free.
• Replacement card: £5, €7.50 or $10.

Best card for discounts

Babee Card

The Babee Card is especially for mums who have got a lot of spending on their children to do and gives you discounts in tonnes of different children’s retail outlets and supermarkets. You can also save money on fuel with the card and every time one is purchased Babee will donate £1 to a baby charity.

It’s a great card to have just to buy the things that it offers you the discounts on, but if you can, avoid using it for other things. Especially getting cashback in a shop which it will charge you £5 for. You can view some of the shops that you get a discount at here. They are also offering a bonus £5 of credit when you refer another mum.

• Purchase fee: £9.95 (Only valid for 2 years).
• Monthly fee: 75p.
• Transaction fees: Free in the UK, £1 plus 3% of purchase cost abroad
• ATM withdrawal: £1 in the UK, £2 plus 3% of the transaction value abroad and limited to £50 per day.
• Loading fees: Free by bank transfer, £1 by debit card
• Cashback in store: £5
• Replacement card: £2.95
• Renewal Fee: £9.95

Prepaid card comparison

Useful links

• Kube card
• Splash Plastic Maestro card
• Travelex Cash Passport
• Caxton FX Mastercard
• FairFX.com Mastercard
• Bread Fx Euro Prepaid Mastercard