Prepaid cards are becoming more and more popular now, with different types coming on the market every year. But is a prepaid card right for you or not? Here are the pros and cons of prepaid cards depending on what stage you are at in your life.
- Prepaid cards for teenagers
- Prepaid cards for students
- Prepaid cards for young professionals
- Prepaid cards for families
- Prepaid cards for retired people
- How safe is your money on a prepaid card?
More and more people are opting for a prepaid card instead of cash. Matt Langford, Head of Prepaid Europe at MasterCard says they have become more popular as they’re convenient, can help you rebuild your credit and make you feel more secure online (because they’re separate from your bank account and they can reduce the cost of buying things online, particularly with companies like Ryanair).
Prepaid cards are useful for parents as they’re able to load money onto the card they give to their teenager, whilst monitoring how much money is being spent.
Amongst the prepaid cards available for teenagers, we like:
- The Neon Prepaid Mastercard which is available to teenagers aged 13–17 years. This is a great card for parents to teach their children about budgeting. Parents can also monitor the online usage of the card without their children noticing and it’s impossible for them to be overdrawn on this card. The downside of the Neon Prepaid Mastercard is that it is only available to use in pounds sterling so using abroad is very expensive.
- The MeCard is another favourite, where the parent has to have a card too which they get for free. Money is loaded onto the card by the parent. With the MeCard you can have a tight reign over your
teenager’s allowance, monitor the usage on the card, and if necessary reload money to it. However, the MeCard does charge for taking money out of an ATM and has to be renewed every two years by the cardholder at a price of £9.99.
These prepaid cards are good as gifts. Teenagers learn to be more frugal as they can only spend the money available on the prepaid card. The prepaid card also educates the teenager in managing their money. However, the disadvantages are that teenagers could lose the card and not realise it so it’s a good idea to check they still have it.
Prepaid cards are increasingly popular amongst students who don’t want to incur charges they can’t easily pay back, and also who need to live on a budget. For students who have got the travel bug, there are prepaid cards particularly useful for travel such as
- The FairFX.com MasterCard, – it can be used anywhere in the world where there is a vendor displaying the MasterCard
acceptance mark. The key benefits to this prepaid card are that there are no hidden charges, cards are issued by Newcastle Building Society so your money on your prepaid card is protected against claims made by creditors, the exchange rate is favourable giving you more foreign currency to the pound, and there are no purchase transaction fees for Euro and Dollar currency cards. There’s a fee of £1 for withdrawing cash from an ATM. The initial fee for the card is £9.95, but Moneymagpies get it FREE!
- Another card we like is the Bread FX Euro Prepaid Mastercard. This is ideal to use in Euro
pe as only euros can be loaded onto it so you tend to get a good exchange rate. This card is also covered by the Newcastle Building Society and there is no commission, no hidden fees, and no purchase charge. Do bear in mind though that the fees for drawing euros out of an ATM are €150 whereas some other prepaid cards don’t charge for ATM cash withdrawal.
- my Travel Cash is another prepaid card which is great value for money. It is one of the few prepaid
cards that does not charge a fee for loading money onto the card, nor does it charge a foreign ATM fee. It has a choice of three cards: Euro, US Dollar and Multi Currency. All of the cards also include 1% cashback on all purchases, which is paid in the currency of the prepaid card a month after the transaction. There is however, a £2 fee if the card is not used for a year or more.
There are many advantages for using a prepaid card abroad, and parents can control the process in two ways. By being the primary card owner they can either load money onto their offspring’s card, or they can send a card as a gift by post, and once their child has received the card, the parent can put money onto the card. Also, as the prepaid card is not attached to a bank account this acts as a protection against thieves spending vast amounts of your money.
The disadvantages are that prepaid cards can have extra fees attached to them such as activating the card when you first use it, fees for taking money out of an ATM, monthly fees, and sometimes fees for making a purchase, so it is vital to check all of these details out before puchasing a prepaid card.
If you are unable to get a bank account, prepaid cards can serve as an alternative, and are useful for having your salary paid into, or for your direct debits to come out of.
- We like the Kalixa Card. This is a great card for shopping and it’s completely free to use – there’s no monthly fee. All you need to pay is a one-off application fee (£6.95). There is also (as with almost all prepaid cards) a charge if you use it to withdraw cash from an ATM (£1.75 in the UK, £2.25 abroad). But the lack of other fees makes it worth a look.
Social security payments, payroll deposits, and government benefits can often be loaded onto a prepaid card. Payments cards are easy to use; purchasing items online, paying bills electronically, or using in restaurants and all major shopping outlets. All of this comes without fear of going overdrawn or credit checks. The downside for the prepaid cards is more often than not the fees for initial purchase, ATM withdrawal, and a fee if the card has not been used for a year or more.
- The Cashplus Prepaid Gold MasterCard is great for online shopping, improving your credit rating and transferring money to family and friends. The disadvantages of this card is that it is expensive to use when going abroad so best to avoid using it for overseas holidays unless in the case of emergencies. When choosing a prepaid card to use abroad, refer to the subheading above entitled ‘students‘.
Prepaid cards can be a great option for controlling weekly spending. Pension payments can be loaded onto prepaid cards and some of the prepaid cards such as the Pockit Prepaid Card are good for special offers and extras. Ron Haynes, Head of Global Prepaid at Mastercard says that currently in the US over three million pensioners have prepaid cards.
Of course, if you are globetrotting in your golden years, the foreign currency prepaid cards are also good ones to go for.
Be aware that the FSCS (Financial Services Compensation Scheme) does not protect e-money which could include money on pre-paid cards. This is because e-money does not satisfy the definition of a ‘deposit’ and so is not within the scope of FSCS protection. E-money is covered by the Payment Services Directive which explains the protection given to users of e-money.
Also there’s no protection for losses under Section 75 of the Consumer Credit Act. With normal credit cards your purchases are covered if they’re over £100 and under £30,000. So, you might be better off opting for a Visa-backed prepaid card to receive cover under the chargeback system.
So when you take out a prepaid card, always ask first what protection you have if the company goes bust while you still have money loaded onto the card.