What do you do if you can’t get a credit card but you want to be able to make payments online? You can apply for one of the many pre-paid cards available. These clever things have all kinds of uses. They’re good for teenagers, people with poor credit, and those on a tight budget.
They can be a little complicated though, and there are downsides so read on for a comprehensive guide.
- What are pre-paid cards – and why should I consider getting one?
- Which pre-paid card is best for you?
- Some important things to consider
- Compare prices at a glance with our pre-paid Card comparison table
- See who pre-paid cards are particularly useful for
- Need a card for purchases in the UK? Try the Travelex Cash Passport
- Save money on transaction fees abroad with the Moneycorp Explorer Card, FairFX.com Mastercard and the Caxton FX pre-paid Currency Card
There are several cards like these on the market which can be confusing, so we’ve put together a simple guide to choosing and using a pre-paid card.
What are they?
Pre-paid cards can be used in shops and online. 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.
However, the downside is these credit cards will often charge you a fee every time you top up, buy things in a shop or take out cash with them.
What they’re best for:
- Because of these charges, pre-paid cards are best used for online transactions and spending abroad.
- They’re also really useful if you can’t get approved for another card.
- You can also get your salary paid into them if you wish.
Where can you use them?
It depends on the card, and this is something you should definitely take note of when choosing which pre-paid card you want. Most of the cards are Mastercard, Maestro, Visa Electron or Amex (American Express) 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). You can also shop online or get your wages paid into your pre-paid card account. Some pre-paid cards offer a standing order service too.
What are the benefits of using a pre-paid card?
There are lots of benefits to using a pre-paid card, though we can’t stress enough that you should read the terms and conditions of any card that you are considering signing up for. This is to check that it is compatible with your needs.
Here are some of the benefits of using pre-paid cards:
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 pre-paid 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.
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 pre-paid 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 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.
Pre-paid credit cards are a great way of controlling how much you spend. All you have to do is set up a monthly standing order to your pre-paid 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 to your budget, you won’t be able to spend more than you previously determined. If you’re trying to get out of debt this is very useful.
If you have children there are some pre-paid cards they can use. You can send them off with their pocket money on their card and 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.
A pre-paid 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 build up huge credit card bills in your name.
However a pre-paid card is not linked to your bank account, so you are protected against this. If you use a pre-paid 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 pre-paid 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 pre-paid 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 pre-paid card on holiday will therefore help you keep tabs on your spending, and you won’t have to come home to a huge bill.
Transfer money abroad
A pre-paid 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 pre-paid 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 foreign exchange transaction fees.
As we mentioned above, pre-paid cards are ideal for holiday spending. These have no credit facility so you cannot lose hundreds of pounds as you might if someone stole your credit card. They can also help you to stick to a budget – only preload the card with the amount you’re willing to spend, then take a credit card or debit card for emergencies. Many pre-paid cards designed specifically for travellers will also be free to use abroad so you could save a considerable amount by using one in place of your debit/credit card.
Under 18s can’t get a credit card and child accounts rarely offer cash or debit cards that are as widely accepted as Visa or Mastercard but some pre-paid cards are available to anyone over the age of 13. A pre-paid 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. They can also help them to start learning about managing money, or can even just be used as a card for emergencies. See our picks here.
The best bargains are to be had online but if you have a poor credit rating and can’t get a credit or debit card, you won’t be able to pay for them. If you have a pre-paid card, however, you can use this instead as most online retailers accept these.
What are the charges?
Naturally, the pre-paid 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:
- Card application fee – Most companies charge this but try to find one with a low fee, or free application 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.
- ATM withdrawals – There are usually charges 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.
- Inactivity charges: If you leave your card unused, you could be charged for inactivity so make sure you use it fairly regularly or cancel it if you don’t want it anymore.
- Customer helpline – Is it a premium rate number or is it charged at local rates?
You must read the terms and conditions of these cards even though it’s boring! They’re all different and you might not like their charges
There are so many cards with different charges for transactions, cash withdrawals, top-ups and purchase and monthly fees. 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.
Essentially the first thing to do is think about what you want to use the card for, then pick one that meets your needs.
Is my money protected?
The money held by pre-paid card companies is classified as e-money, therefore it is not subject to the same regulations as when you deposit money in a bank or building society. The FSCS (Financial Services Compensation Fund) exists to pay out compensation in the event of your bank or building society going out of business. This means your money is safe. It is a bit different with pre-paid cards. Some are covered by separate e-money regulations that mean your money is safeguarded in case of bankruptcy. This provides for pre-paid card holders’ monies to be re-paid as a priority over all other people owed money.
Strangely, banks and building societies issued pre-paids card are not covered by these regulations, nor by the FSCS compensation scheme. So this leaves you in a tricky position if the bank or building society backing your pre-paid card goes bankrupt. You will have no way of getting your money back.
What can’t I buy with a pre-paid card?
Pre-paid cards may advertise that they are accepted wherever credit cards are but the truth is a little different. There are certain situations where you can’t use a pre-paid card or using one may cause you difficulties.
Pay-at-pump petrol stations/ road tolls
At pay-at-pump petrol stations and most road tolls your card will not be accepted. As they don’t have the facility to check the balance.
Hotel reservations/ car hire
Using your pre-paid card to guarantee a hotel reservation or car hire may also not be a good idea. The company may take an initial authorisation amount which will hold this money and prevent you from spending it until you return the car/ pay the hotel bill.
Even once they refund it a few days may have to pass before that money is available to spend. These factors are important to keep in mind, especially if you intend to use the card for holidays.
Best cards for spending in the UK
- £6.95 purchase fee
- No monthly fee
- Doesn’t include a loading fee for bank transfer or cash loading (1.75% fee for credit or debit card)
- Minimum top up: £10
- UK transaction fee: None
- ATM withdrawal: £1.75
- Cards issued by Vincento Payment Solutions Limited.
Travelex money card
- Doesn’t include a purchase fee
- No monthly fee (£2 per month following 12 months of inactivity)
- Minimum top up: £100
- UK transaction fee: Free
- ATM withdrawal: Free
Pockit pre-paid Mastercard
- Purchase fee: free for pay monthly
- Pay monthly fee: 99p
- Transaction fees: Free
- UK ATM: Free
- International ATM: £2.25
- Loading by bank transfer and debit card free, credit card 3.5% fee
Cashplus pre-paid Mastercard
- Purchase fee: Free
- Monthly fee: free to £5.95 per month
- Transaction fees: free for pay monthly
- ATM withdrawals: up to £2
Net+ pre-paid Mastercard
- Purchase fee: free
- Monthly fee: free
- Transaction fees: free (in a different currency than the card: 2.95% foreign exchange fee)
- ATM withdrawal: £3
- You have to apply for a NETELLER account online to be able to apply for this card. This is free.
- Loading: free by debit card, credit card 1.75%, bank transfer free
- Money deposited with Neteller UK Ltd
Best cards for using abroad
Cards for international travel differ slightly from standard pre-paid 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. These 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.
Moneycorp Explorer Card
This card is great as it allows you to load it with up to £10,000 in as many as 14 different currencies, so it’s ideal for multi-trip holidays. It’s PIN protected and valid wherever Visa is accepted. We love the option to ‘lock’ exchange rates so you don’t get caught out by negative currency movements. This information refers to the enhanced option and application has to be online.
If you’re running out of time before your holiday, you can pick up a basic card in one currency from any Moneycorp bureau de change branch. This can be loaded with up to £1,600 and used only once. The fees are the same as the enhanced card and you have the option to upgrade later.
- No purchase fee
- Zero monthly fee (£2 per month following 12 months of inactivity)
- No loading fees
- Minimum top-up: £200
- Transaction fee: free unless used outside denominated currency. 3% in UK.
- ATM withdrawal: free, but may be subject to ATM operator charges.
- Your money is held with Clydesdale Bank.
TUI Travel Moneycard
This is a good card for holidays as it is available in euros, US dollars, and Australian dollars, as well as sterling. The sterling card is more expensive than the others so not a good choice. The other disadvantage is that the minimum loading amounts are high, although the card lasts for three years so the balance can be used on your next foreign trip.
- Application fee: free (except sterling card)
- Monthly fee: free
- Transaction fee: free (except sterling card)
- ATM withdrawal: €2/$3/A$3/£1.50
- Loading: free at TUI travel agents/ free online by debit card, 2% fee via credit card
- Minimum load: €100/US$150/A$150/£100
- Issued by Clydesdale Bank plc
my Travel Cash
My Travel Cash offer three pre-paid MasterCards – in sterling, euros and US dollars. You get 1% cashback on all purchases which is great for buying souvenirs and gifts. Another big bonus is that there are no ATM withdrawal fees, so you can get at your cash whenever you want without worrying about hefty charges.
- Purchase fee: free
- Monthly fee: free
- Transaction fee: free, or 2.99% if used outside denominated currency. 2.99% in UK
- ATM withdrawal: free
- Loading: free by debit card, 2.5% by credit card
- Minimum load: £25/€30/$40/
Starbucks offer a pre-paid card for their fans. This can only be used for buying stuff in their outlets but offers many money-off perks for the addicted. The card is free and the minimum initial load is £5 and £2 thereafter. Cards can be loaded online or in store and there are no fees; the card also has no expiry date.
We can’t conclude an article on pre-paid cards without mentioning Ryanair’s Cash Passport. This was launched in October 2011 and encountered widespread criticism: it costs £6 (although you receive a £6 voucher to spend on flights) and is the only card you can use to avoid Ryanair’s administration fee when booking flights through their website. It has a high minimum load of £150 and seems designed solely for this purpose. Despite Ryanair’s protests to the contrary it’s not covered by the e-money regulations or the FSCS as it’s issued by a bank, so, like many of these cards, your money is not safeguarded. Finally, you will cop for a monthly fee of £2.50 if you don’t use the card for six months.
Certainly there’s plenty of choice in the pre-paid market. So if are struggling with poor credit, need help budgeting, or fit into any of the above categories, then it’s an option worth thinking about.