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Prepaid cards
 A prepaid card could be safer than cash
What do you do if you don't have a credit card, but want to be able to make payments online? Prepaid cards are increasingly popular, and teenagers, people with poor credit and holidaymakers find them particularly useful. Here’s our simple guide to choosing and using a prepaid card. What are prepaid cards? Prepaid cards are payment cards that you can use in retail outlets and on the internet that you pre-load with money. This way it is impossible for you to get into debt because you can't spend more than you have on the card. The cards works in the same way as a pay-as-you-go mobile phone: you top up by however much you like and once the credit has reached zero, you are unable to use it. However, unlike a pay-as-you-go phone, prepaid credit cards will often charge you a fee every time you top up, purchase items in a shop or take out cash with it. Because of these charges, prepaid cards are best used for internet transactions and spending abroad if you really can't get approved for another card and if you don't have a bank account. Although they do have lots of uses, the problem with prepaid cards is that you don't have to be a bank to provide them because there is no lending of money involved. They do need the banks to act as a 'bin' to accept deposits (you need a licence to do this) from card holders, however this is a service that they will pay the banks to provide them with and it does not mean that the card provider themselves must operate within the same code of conduct as the bank. Basically what this means for you is that you must always read the terms and conditions of any card you are considering applying for. The variety of cards on the market is confusing, so you should be looking for the differences, but pay special attention for anything out of the ordinary that might cost you more than you want to pay. 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), 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 stable address when applying for many of them. If you cannot provide this you may find you are offered a card with limits on how much you can top up for an increased purchase charge, or your application may simply be rejected. You don’t necessarily have to be 18 to use a prepaid card. The minimum age varies from company to company, but 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. We cannot 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:
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 inability to prove who you are.
If you have the money to spend, it's much better to carry around a card than lots of cash. You are less vulnerable. If you carry a lot of cash and you lose it or it is stolen from you, you can't get it back. However, like normal credit cards, 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 is gone and hopefully 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 shouldn't cost too much.
Prepaid credit cards are a great way of controlling how much you or your family spend. You can use a prepaid card to budget for your monthly spending, insuring that you don't spend any more than you have. 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 are trying to get out of debt, a prepaid card can be particularly helpful.
A prepaid credit card is extremely useful when you are travelling or on holiday. Firstly this is because a large proportion of credit card fraud happens when we are 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, which will save you money. 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 are 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.
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, put the money in the account and they can then spend it. This way the only charges you have to pay are the transaction fees.
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 for a prepaid card? Naturally, the prepaid card companies aren’t letting you use their cards out of the goodness of their hearts; charges will apply. 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:
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. 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. Cards with no monthly fee:
Purchase fee: £3 Purchase fee: £5 Purchase fee: £6.99 Purchase fee: £9.95 Purchase fee: £9.95 Purchase fee: Free on £20 vouchers, £2 for £30-£100, £3.50 for £110-£200 3V Vouchers are not the same as a prepaid credit card. You have to first register for a 3V Customer Card online and then once you receive your card, you can go and buy 3V vouchers from a payzone retail outlet. The voucher is a visa code which can then be used to purchase items in shops where the visa sign is displayed. They are sort of like gift vouchers, but you can use them anywhere. You can transfer the balance of one voucher to another for a £1.75 fee and you have to spend all the money on the voucher before its expiry or you will be charged. This is a good one for those who do not have a bank account but want to shop on the internet. You don't need to have a bank account to get these vouchers and you won't be charged more for using cash. Purchase fee: Free A Paysafe card is even simpler. No need to register, you just buy one from a paysafecard retail outletand then spend it online at participating retailers. It's either a card or a receipt with a code which you then enter when buying at participating retailers. Easy peasy. Cards that give you discounts: Purchase fee: £9.95 The Tuxedo Mastercard allows you to use the Tuxedo cashback site where you will get cashback paid onto your Tuxedo card when you shop online with their retail partners. It's the same as any cashback site, but the money gets paid onto your Tuxedo card instead of into a bank account. If you don't want to pay the £9.95 purchase fee, all you've got to do is shop on Tuxedo cashback until you've made £10 in cashback and they'll send you a Tuxedo card for free. Purchase fee: £14.95 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.
Cards for international travel: Cards for International travel differ slightly from standard prepaid cards. Often you must 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 for using it to purchase things in a different currency to that on your card. Purchase fee: £9.95 The FairFX Mastercard is a really good deal. Although there is a purchase fee, the only other fee they charge is a cash withdrawal fee which is very reasonable. Although the cards only come in US dollars, euros or sterling, you can use them anywhere in the world and you will not be charged foreign exchange commission. They also have business exchange rates which means you get more foreign currency for your pound.
Purchase fee: Free Purchase fee: £7.50 Purchase fee: Free Purchase fee: Free This one is very complicated. For further info please look at the terms and conditions. Related articles
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Sarah Squires and Alessia Horwich
Moneymagpie Moneypedia
03.10.2008
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