What is a prepaid card?
Published: 16 July 2010 Topic: News,Money,Travel,Prepaid Cards,Travel Money
If you're going abroad on holiday this year, it's well worth considering a prepaid card. You may wonder why if you've never used one before and don't really know what they are. Well wonder no more, we'll explain all.
A prepaid card can be used instead of a credit or debit card, but the reason why they can be a great option for those travelling overseas is that they are often significantly cheaper.
Why would I use a prepaid card abroad?
Credit and debit cards are often laden with charges for overseas spending - unless they are cards specifically designed for foreign use. Most cardholders will be shocked to discover that using their credit or debit card to make purchases abroad will cost them between 2.5% and 3.00% more than they thought, as they are charged a foreign usage fee.
That means a prepaid card can give you the convenience of a credit or debit card, without the high charges.
It's not just a question of cost, however. Ana Ansell, director at prepaid card provider Travelex, said: "A prepaid card offers customers the safety and security of using a card that isn't connected to a bank account."
It also means you can protect your holiday money with chip and PIN, which is another level of security on your trip. If your card is lost or stolen, most providers will issue you with a new card, much the same as with a credit card.
However, you may prefer not to rely solely on prepaid cards. Ana added: "Travelling abroad, we'd suggest people take a 'mixed wallet' of cash and cards so that, on arrival, they have local currency ready for taxis or cafés that may not take cards, or for tipping."
How do prepaid cards work?
In order to use a prepaid card, you have to load it with money - in many cases this can be done online and you can top it up as and when you need. Once there is money on it you can use your card for purchases or to withdraw cash from an ATM. There is no credit facility however so you can only spend what you have on the card.
There are three types of cards for travellers: Euro, dollar or global cards.
When you load money onto a euro or dollar card, your sterling is converted instantly into the relevant currency. These cards are ideal if you're holidaying in the Euro zone or the United States.
However, if you're going anywhere else in the world they aren't the best option. You will be able to use a euro or dollar card elsewhere but you'll pay an additional exchange fee because the money held on the card will have to be converted to the currency of the country you're visiting.
A global card is what you really need if you'll be holidaying outside Europe or in a country that doesn't accept US dollars. They work slightly differently though. Rather than converting your money at the time it is loaded onto the card, it is held in sterling until you come to use it. It will then be switched into the relevant currency.
It is a bit harder to manage your money with a global card. With a euro card for example, you'll know how many euros your sterling has bought you at the point the card is loaded. You can then keep track of how much you've spent because each transaction will be in euros as will the card balance.
However, global cards are more like debit or credit cards in that you don't actually know the exact sterling value of the transaction at the point of purchase. You can of course, login to your account and check how much is left on the card, but it is slightly more complicated than a euro or dollar card.
Are there any fees or charges to watch out for?
When comparing prepaid cards you do have to check the product details as they charge in different ways. Some will charge an application
or monthly service charge; some levy cash withdrawal fees or charge each time you load up the card; while others add commission to the currency conversion rate.
So which prepaid card is best?
The different fees and charges can make it difficult to work out which card is the 'best'.
For example, if you're spending in Europe then the Caxton Euro Card is a great option - it is free and has no charges for using international ATMs. That's pretty simple.
However, the FairFX Euro Currency Card Special charges €1.5 euros to withdraw money abroad but you do get a better exchange rate.
So, on July 15, Caxton was paying €1.177 euros to a pound. meaning £1,000 would buy you €1,177 euros. Meanwhile, FairFX was paying €1.180 euros to a pound. so you'd receive £1,180 for your £1,000 .
That means if you only plan to use the card for spending in shops, the FairFX card is a better deal. However, if you think you'll make more than two cash withdrawals, you'll be better off with the fee-free Caxton card.
As well as Caxton, the Escape Travel Money Euro Card is also free to use in foreign ATMs, although you'll be charged a set-up fee of £9.99 and it pays a lesser rate of €1.1683 euros to the pound .
The FairFX. Caxton and Escape deals are all available as dollar cards too.
The Travelex Cash Passport card is available in a variety of currencies, including euros; US, Australian, New Zealand and Canadian dollars, and South African rand. If you are travelling through a number of different countries, the Cash Passport Globe can be loaded with sterling and converted as you spend.
It levies a flat fee of 1.49% when used abroad and, at time of writing, is offering €1.1618 euros to the pound .
The card itself costs £14.99. although it's free if you load more than £500.
'Prepaid credit cards'
By the way, sometimes, you'll hear this kind of plastic referred to as 'prepaid credit cards' but this is misleading - there's no credit facility with a prepaid card and you don't need a credit check in order to qualify.
You also don't get the extra protection under the Consumer Credit Act that you do when you spend between £100 and £30,000 on a credit card.
However, some prepaid cards do offer purchase protection as part of their package, meaning that if the supplier went bust or your order was incorrect or faulty, the card provider could reimburse you. Not all prepaid cards do offer this, so if you want it, it's worth checking the benefits to see if it's included.
Don't lose your money
One thing to really watch out for with a prepaid card is that you don't forget any loaded currency.
Some prepaid cards have a set lifetime - often of between six and 36 months - and once they expire, the provider will usually keep any funds that remain.
That means unlike currency or traveller's cheques, if you forget your card once you're back home, it could be valueless when you next come to use it. Don't leave large sums on a prepaid card if you aren't sure when you'll need it next.
Are there any good debit or credit cards for use abroad?
The only debit card that doesn't charge overseas' usage fees is Nationwide Building Society's. However it is only free if you use it in Europe. You'll be charged 1% elsewhere in the world (although this is still a lot lower than other debit cards).
There are a number of credit cards which are good to take away with you. The best is the new Halifax Clarity card as it has no charges and a lower than average rate of interest at 12.9%. For more about this and other credit cards for overseas spending, read our article 'New market-leading credit card for foreign spending '.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.Source: www.moneysupermarket.com