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How to Choose the Best Prepaid Cards

Fiona Leake
Fiona Leake
  | Edited by Fiona Leake
Updated 4th February 2021

Want to pay by card but don’t want a debit or credit card? Then prepaid cards might be for you. Read our guide to find out the best prepaid cards for travel, for everyday use and even for children. We also answer your burning prepaid card questions in our frequently asked questions (FAQs) section.

What are prepaid cards?

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A prepaid card is a card that needs to be preloaded with cash before you can use it to make purchases. There’s a simple rule to prepaid cards: if you haven’t loaded any money, you can’t spend it. 

Prepaid cards work very similar to pay-as-you-go phones, meaning you can’t overspend if your balance hits £0. This is why prepaid cards can be great for those who need to stick to a budget or for teenagers to limit their spending. 

Once you run out of money, you can top-up your prepaid card with cash again. 

What’s the difference between prepaid cards, debit cards and credit cards?

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Prepaid cards can sometimes be called prepaid debit or prepaid credit cards. However, prepaid cards are different from credit or debit cards.

You won’t need to undergo any sort of credit check to get a prepaid card as you aren’t borrowing money, meaning that they are very different to credit cards! With a credit card, you are given a credit limit and you can borrow money up to that limit. If you don’t clear your balance before the end of the month, you’ll be charged interest. 

You also don’t require a bank account to have a prepaid card and you can’t use an overdraft like you can with a debit card. Debit cards allow you to spend money from your bank account. However, you can go overdrawn with a debit card if you have an arranged overdraft.

You can make purchases and withdraw cash with a prepaid card in the same way you would with a credit or debit card. However, these cards need to be preloaded with money before you can use them. The bonus is that you cannot go overdrawn or build debt with prepaid cards.

How do prepaid cards work?

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Step 1 - You get a prepaid card 

Step 2 - You load it with cash

Step 3 - You spend the cash with the card

You can get a prepaid card from retailers or online. There’s usually a limit on how much money you can load onto your prepaid card. These cards are designed for everyday spending, not necessarily larger purchases.

Most prepaid cards are either Visa or Mastercard, this means that almost everywhere you go will accept it as a payment method. 

Remember, you can’t spend more than the balance you’ve loaded onto the card. There’s no overdraft or borrowing option on a prepaid card. You’ll need to load money either by a bank transfer, paying cash at a bank, Post Office or PayPoint store. 

Do prepaid cards charge fees?

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Prepaid cards aren’t free to use. They do charge a lot of fees which need to be taken into account before getting one. Some prepaid cards charge more fees than others, so always compare to find the best deal for you. Prepaid card fees can include:

  • Monthly fees (typically between £2 and £5)
  • Top-up fees
  • Application fees (up to £10)
  • UK and abroad cash withdrawal fees (around 3%)
  • Transaction fees (around 50p)
  • Inactivity fees
  • Cancellation fees

The 4 types of prepaid cards

There are many different types of prepaid cards, depending on what you are looking for. Think about what you’ll be using the card for to find the one that’ll suit your needs.

1. Pounds sterling prepaid cards

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This is a standard prepaid card that you can load with pounds sterling to use for purchases and withdrawals in the UK. 

2. Prepaid cards for travel

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You can get a prepaid travel card that you can usually load with either euros or dollars. Prepaid travel cards tend to charge fewer fees when using abroad than credit or debit cards would. Unless you use a travel credit card or a travel debit card like Revolut and Monzo, that is. 

3. Prepaid cards for teenagers

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Most prepaid cards require you to be over 18 but you can get some that will cater to younger teenagers and students. Prepaid cards can be a great tool to get teenagers used to paying by card and become financially responsible. 

Parents can also keep track of their children’s spending by loading a certain amount onto the card to help budget. Prepaid cards for teenagers don’t tend to charge a monthly fee but do charge more for transactions and withdrawals.

Some prepaid cards for children come with extra control for parents. For example, you can track spending, determine where the card can be spent, set a spending limit and even block spending on the card.

4. Prepaid cards for bad credit

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If you are struggling to get a credit card due to poor credit history, a credit-building prepaid card could be a good option. Credit-building prepaid cards aren’t very common but if you can get one, building your credit history is well worth it.

These cards work by lending you a year's worth of monthly payments (around £5 to £10). You then repay the amount over 12 months. Your credit score will improve if you make these monthly repayments.

Why use a prepaid card?

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Prepaid cards are great for those who struggle to stick to a budget or have a bad credit score. This is because prepaid cards don’t carry out a credit check when you apply, even if you’ve been bankrupt before you’ll be able to get one. Some prepaid cards offer credit-builder programmes which will benefit those that have no or poor credit history. 

If you are looking to set a budget for yourself or your kids, prepaid cards can also be a good option for you. You cannot spend more money than you load onto the card, meaning you won’t be tempted to overspend. Which is also a great way to give your children an allowance. 

Furthermore, some people might get a prepaid card just for travel. You can load travel prepaid cards with your desired currency and use it abroad whilst avoiding some of the fees. 

How to use a prepaid card

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You can use a prepaid card anywhere that accepts Visa or Mastercard. Using a prepaid card is just like using a debit or credit card. You can use them online by entering the number and expiry date, or in-store by entering your PIN.

Many prepaid cards are now also contactless, which means your card can be tapped without entering the PIN for in-store purchases up to £30*.

*The government has temporarily increased the contactless transaction limit to £45. This encourages contactless purchases throughout the coronavirus pandemic. 

Before you can make any purchases with your prepaid card, you’ll need to load cash onto it. 

How to top-up a prepaid card

There are several different ways you can load money onto your prepaid card in the UK:

  • Online - you can sign in on your prepaid card provider’s website or app to add money onto it.
  • Cash - some banks and retailers have a PayPoint service where you can pay physical cash into your prepaid card. You can also do this in the post office. 
  • Bank transfer - you can transfer money directly from your current account to your prepaid card. You’ll need to know your prepaid card’s sort code and account number.

Should I get a prepaid card?

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Before deciding whether a prepaid card is for you, take a look at both the pros and cons.

Pros of prepaid cards

  • Set a budget - you can only spend what you load onto your prepaid card, meaning that you can easily stick to whatever budget you set. You won’t ever have to worry about overspending. 
  • Help students - teach students about financial responsibility by giving them a small budget to spend on a prepaid card. 
  • Extra security - scammers can only inflict as much damage as there is money on your prepaid card. Once the balance is spent, they cannot spend anymore. If your prepaid card is stolen and you see charges you didn’t make, get in touch with your card provider right away. Different providers have different rules but you should be able to receive a refund if you get in touch without delay. 
  • Great for travel - avoid carrying cash on holiday by using a prepaid card instead. Some prepaid cards for travel won’t charge many foreign fees either.
  • No credit checks - prepaid cards don’t carry out credit checks, meaning you can get one with a poor or no credit history. 
  • Rebuild credit - some prepaid cards offer a credit-building programme. This will help you to get back on track and fix your credit score. 

Cons of prepaid cards

  • Fees - prepaid cards do come with a lot of fees that can add up as you use it. Make sure you understand all of the charges before using a prepaid card.
  • No Section 75 protection - purchases over £100 are covered under Section 75 of the Consumer Credit Act with a credit card. However, prepaid cards aren’t covered by Section 75, meaning getting a refund will be more challenging. 
  • Can’t use it everywhere - you won’t be able to use a prepaid card when you hire a car or for a hotel bill. You won’t know how much you need to pay in advance and so probably won’t have enough on your card. Or, you’lll have to set a chunk of money aside that you can’t spend. 

How to compare prepaid cards

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Prepaid cards come with different fees and features that you’ll need to compare to figure out which card is best for you. Think about the following when comparing prepaid cards:

  • Fees - prepaid cards come with a lot of fees. Some cards will charge more than others because they come with bonus features, such as credit-building, for example. So, figure out which features you need and try to find a card with the lowest amount of fees as possible. 
  • Money loading options - different prepaid cards may have different ways of loading money, make sure you pick a card where the method is easy for you to do. You’ll want to be able to top-up the card quickly and conveniently so keep this in mind.
  • Foreign fees - if you need to use your prepaid card abroad, look for one that is specific for travel. This will allow you to load foreign currency on the card and it’ll charge fewer fees abroad.

5 Prepaid card need-to-knows

Before getting a prepaid card, have a read over our top five need-to-knows to help you decide whether to get one and how to use one properly. 

1. Use prepaid cards for budgeting 

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If you struggle to budget your money, you can use prepaid cards to alter your spending habits. Prepaid cards are a great way to avoid regularly dipping into your overdraft or building up debt on a credit card. This is because you can only spend money you’ve loaded onto the card, no more.

If you’re prone to overspending, prepaid cards can help to kick this habit. Or, you can use a prepaid card to teach your children good spending and budgeting habits.

2. You WON’T have Section 75 protection

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Unlike credit cards, which offer you protection on your purchases under Section 75 of the Consumer Credit Act, prepaid cards don’t have this level of protection.

However, prepaid cards are covered by Visa and Mastercard's chargeback schemes instead. These schemes aim to refund you if something related to your purchase goes wrong. 

3. You can’t use prepaid cards everywhere

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You may not be able to use prepaid cards for transactions that require a security deposit or pre-authorisation.

Even if you are allowed to, it might not be practical as the funds on your prepaid card will be locked until you settle your bill. This ‘locked’ portion of funds could make up the majority of your balance, rendering the card unusable for a period of time.

4. The fees add up…

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Prepaid cards do come with lots of different fees that can easily add up as you use the card regularly. Carefully consider the fees of each prepaid card and decide whether the benefits of using the card outweigh the costs.

5. Consider a credit card

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If you are unable to get accepted for a credit card, a prepaid card can be a great option to use for everyday spending, especially if it has a credit-building programme. 

However, try taking a look at some credit card eligibility calculators on the card provider’s website. If you are likely to be accepted for a credit card, it could be worth applying. However, it all depends on why you want the card. Do you want 0% interest on purchases? Cashback? Or to transfer a balance

Only get a credit card if you really need one, will benefit from the perks on offer and can pay back your balance IN FULL every month to avoid interest. 

Prepaid cards are still a good option if you’re on a tight budget, can’t get accepted for a credit card or are looking for a way to provide your teenagers with an allowance. Just make sure a prepaid card is worth the additional fees.

FAQs

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