If you want to pay with plastic, but don’t want a debit or credit card, a prepaid bank card might be the right option. There are many different cards out there, and they can be particularly useful for young people and holidaymakers.
- What are prepaid cards?
- Charges and fees
- Why use a prepaid card?
- How your money is protected on prepaid cards
- Picking a prepaid card
- Don’t think a prepaid card is right for you?
What are prepaid cards?
A prepaid card is like a pay-as-you-go mobile phone – you top it up with money in advance.
You use it like any other payment card, in shops or online. Most prepaid cards work at cash machines too.
The difference is that the card isn’t linked to a bank account.
You can only spend the money you put on it, so there’s no way of going overdrawn or running up a debt.
Charges and fees
No two prepaid cards are the same when it comes to fees, so always check before you choose.
The fees can include:
- top-up fees
- monthly fees
- application fees
- UK and overseas cash-machine withdrawal fees
- transaction fees (for example, 3% of the value of each purchase)
- inactivity fees – you get charged if you haven’t used your card for a certain period of time.
Why use a prepaid card?
Prepaid cards are a good way to make sure you stick to a budget.
However, they do usually charge fees so they might not be the best solution for you.
They can be a good idea if you’re looking for:
- A way to give your children an allowance: when the money runs out, you can choose to top up the card, just like a pay-as-you-go phone. For more ideas visit You, your kids and money.
- An alternative to traveller’s cheques: you load a prepaid travel card with money before you go and you’ll be able to spend it while you’re away. Read more in Travel money options – cash, cards and traveller’s cheques.
How your money is protected on prepaid cards
The money put on your prepaid card is classified as electronic money, or e-money. This means it doesn’t get protection from the Financial Services Compensation Scheme (FSCS) if your bank or building society goes bust.
This just means you need to be careful not to store lots of money on your card. Put just the amount you need on it for immediate spending, and keep the rest of your money in a bank account.
Picking a prepaid card
You can compare prepaid cards using price comparison websites, but make sure you use more than one as they don’t all have the same deals.
We recommend using the below:
Don’t think a prepaid card is right for you?
Take a look at your other options:
This article is provided by the Money Advice Service.
