Prepaid cards are obviously different to credit cards because you don’t have the opportunity to go into your overdraft and you have to reload the card every time the balance goes to zero. The most obvious advantage is that it helps people plan how much they are going to spend – whether its budgeting on a daily basis, on holiday or giving an allowance to your children. Below we provide a list of the different pros and cons with prepaid cards.
The pros of using a prepaid card
- Prepaid cards are a widely accepted method of payments. Many places in both the UK and abroad have facilities that allow you to use your prepaid card, in the same way that you would a debit or credit card.
- Withdraw from ATMs. You can access money from your prepaid card from any ATM in the world. Withdrawing overseas may incur extra charges depending on the card. You can also check your balance at any ATM so you know how much is available in your account.
- Get the same welcome perks as other credit cards. Some prepaid cards offer the same welcome bonuses as regular credit cards such as cash back, air miles and nectar points.
- Manage your budget. Prepaid cards allow you to effectively budget how much you are going to spend each month. If you are one who is used to going into your overdraft, this type of card can help you set a strict budget by limiting the amount you can spend each month before having to top up.
- Prepaid cards are pin protected. You have to provide your own chip and pin number when making purchases which gives extra security. There is also the benefit that if your card is stolen, they can only access what has been prepaid on the card and nothing more.
- Good to use abroad. Typically prepaid cards offer an exchange rate that it fixed at the time of loading so you don’t have to worry about exchange rate fluctuations affecting the value of your money. Moreover, unlike most debit and credit cards you won’t be charged foreign exchange fees on purchases made abroad.
- You have payment protection. If you have a Visa or Mastercard prepaid card then you may be able to claim back any losses using the charge back mechanism. This allows you to ‘chargeback’ from your bank if the supplier goes into administration, the good is defective or the good is not delivered.
The cons of using a prepaid card
- No credit limit. A prepaid card requires you to put money in the account first to use it. You have to earn the money up front and be willing to deposit the money into a prepaid account in order to use the card like a credit card. The latter gives you a credit limit and allows you to make purchases free of charge for an entire month.
- Credit cards have more protection. Even though you are offered some protection when using a prepaid card through the chargeback scheme, it is no where as a strong as the protection offered by Section 75 since the chargeback scheme is internal whereas Section 75 is a legal requirement.
- Beware added fees. There are additional fees after setting up a prepaid card including monthly fees, top ups, cash withdrawals and inactivity fees.
- You may forget about the money. When you put money onto your card, you may forget how much is on it and feel no need to use it. In this case, you would have to put money into the account up front and you will be out of pocket even though the card is not used. This is a pain because you can be charged inactivity fees for not using the card for at least three months. For example, if you give a prepaid card to your child only for emergencies and they may never use it. Similarly, if you get a travel card for your holiday and forget that you have money left over. For this reason, it is always good practice to check your balance when you visit an ATM machine.
Use our comparison table
It is important to take all these considerations into account when comparing prepaid products. You can compare prepaid cards on our main comparison table and be sure to look at all the different fees when making your decision.
It is vital to think about the purpose of your card. For example, a travel card will probably only be used for a one-off holiday and therefore you should find one with no monthly fees. Similarly, if you are using the card to give an allowance to your children then you will want a card that is easy to top up and has no top up fees.
USEFUL INFORMATION How to top up a prepaid card What is a chargeback scheme? The pros and cons of using prepaid cards