Prepaid Cards

Prepaid cards let you load cash on them and spend anywhere credit and debit cards are accepted. As there’s no credit score, this new species of plastic means teenagers or those usually rejected can now get the same discounts as everyone else by buying online.

This is a full detailed guide looking at the top prepaid cards for spending online, overseas, giving to kids, and if you’ve a poor credit history.

• What are prepaid cards?
• How do they work?
• The Top Prepaid Cards
• Best Buys: Teenagers
• Best Buys: Online
• Best Buys: Overseas
• Best Buys: Poor Credit
• Problems with prepaid

Get your hands on some plastic

What are Prepaid cards?

Prepaid cards do exactly what they say on the tin; you load cash onto a card, which can then be used in shops and restaurants just like a debit or credit card. However, that’s pretty much where the similarities end, first there’s the crucial point…

If you haven’t loaded money on, you can’t spend on it.

A common worry is that these are niche products, and won’t be accepted by a glut of major retailers. Yet this is a myth; the vast majority of prepaid cards are accepted by any shop in the Maestro network, and that's the substantial bulk of places, both in the UK and abroad.

Who are prepaid cards for?

If you can comfortably get credit cards, or even open a normal current account, which gives a standard debit card, then in general that's the best option. The right credit card will pay you cashback, and even normal debit cards are usually fees free for spending on them.

That leaves prepaid cards best used for the following…

• Give one to your kids.

  You need to be 18 to get a credit card, and most children can’t get mainstream debit cards i.e. Switch/Visa. Yet many prepaid cards allow anyone over 13 to get one. These can help your son/daughter with their money management, and allow them to spend in many shops or online. Jump to: Teens Prepaid Cards

• Spending online.

  The web’s a powerhouse when it comes to bargain hunting, however you’ll nearly always need plastic to actually purchase online. If you can’t get credit or debit cards, most websites will accept prepaid. Jump to: Online Use Prepaid.

• Overseas spending.

  If you are spending in a foreign currency (on holiday or over the web), the first port of call is the top credit and debit cards, followed by the cheapest holiday cash. Failing this, the right prepaid card will spank the bottom of just using a normal debit card (especially the Cards from Hell!). Jump to: Overseas Spending Prepaid.

• Improve your credit rating.

  Prepaid card providers don’t do a credit check when you apply, so a poor credit rating won’t stop you getting one, unlike all debit and credit cards. Better still there’s a prepaid card deliberately designed to help you rebuild your credit history. Jump to: Rebuild Your Credit History

How do they work?

It’s dead simple; apply for a card, transfer cash onto it, and you’re ready to go. Then as you use the card, you’ll incur various charges; the MoneySaving key is to avoid paying these, or find cards where they’re as low as possible. The cards listed later will explain the fees, but first it's worth understanding when they can charge:

Top Up Fees...

Most cards offer myriad ways to load the card. It’s very common for a fee to be charged when you top-up, around £1 or 3% of the value loaded, depending on the card.

• Online. If you do have a debit or credit card, most prepaid cards have websites that let you add funds. The usual charge for this is around 3% of the top-up (usually less if you can top up via debit card).

• Post offices / Paypoint machines. Many prepaid cards can be topped up, either by cash, card and sometimes even a good old cheque, in Post Offices or at Paypoint machines. The latter are special bill payment terminals found in over 20,000 newsagents and local shops. The fee is typically a flat 75p - £1.

• Bank Transfer. A smaller number of prepaid cards let you transfer cash directly to them from your current account. Less common but usually free.

Usage Fees...

Many cards charge an array of nasty fees, yet many can be avoided entirely, whilst others can be whittled down.

• Application & Replacement Fees.

  Many cost £8 - £10 to open, displayed prominently on their websites. However, many also charge a sneaky ‘Replacement fee’. That’s because the card only has a limited life span and you’ll need a new one after a year, which will cost around £5 if you want to keep any funds already on it.

  A few cards also charge a monthly fee of a few quid simply for holding it; these very rarely work out as anything other than extremely expensive!

• Transaction Fees.

  Many cards charge you for retail purchases (just buying something in a shop), or withdrawing money from an ATM. Both fees usually jump when done abroad. Read more .

• Inactivity charges.

  Prepaid providers want you to regularly use the card, racking up charges and boosting their profit, so you’re often penalised if the card goes unused. Use it frequently enough to avoid this charge, even just to buy a bag of crisps (or one of your five daily fruit & veg!). Similarly, don’t over-load funds onto the card; most charge a fee to refund it.

• Exchange rate.

  If you’ve picked a card to use abroad, the rate of exchange is a sneaky hidden cost, governing how much spending power you get for your pounds. Most use the Mastercard/Visa rate, unbeatable by any bureau de change, but then add a load on top to make it more costly. However, some use their own, worse exchange rates; so do a quick check compared to the best using the Travel Money Maximiser.

The Best Prepaid Cards

There are seemingly endless varieties of prepaid card, making choosing the right one a minefield. Yet in each category, picking the best is simple, go for the one which will charge you the least.

Top Card for Teenagers

Not all prepaid cards let under-18s apply, so the top picks here are the cheapest of those that do.

• Extreme Cred. No fees for spending

  The excellently-named Extreme Cred prepaid card is available to anyone over 13, and charges a one-off application fee of £8.95, plus a monthly fee of £1. After this, you’ll be charged each time you top up the card, and the cheapest way to do this is in the Post Office, at 70p a time (do it online and it’ll cost up to 3% with a minimum 85p of the amount loaded). You’ll also be charged an annual £3.99 replacement fee.

  Yet its advantage is there are no fees for spending with Extreme Cred, so the overall cost rests on the amount of times you load. Provided you trust your teenager, it’s cheaper to load up larger amounts less often, than adding lots of little amounts at 70p a time.

  In order to pay the initial £8.95 fee online, you’ll need a debit or credit card (though this can be a parent’s card).

  QUICK STATS: Card Issue: £8.95. Monthly Fee: £1 Top up: 70p in Post Office, c.3% online. Spending: FREE. Cash Withdrawal: £1 Min Load: £10. Max Load: £500 Replacement fee: £3.99/year

Online UK Spending

Here the top pick depends on personal choice.

• Travelex Cash Passport. Overall cheapest, but less accepted

  The undisputed cheapest way to spend with a prepaid card, is the Travelex Cash Passport*. It is free to get one, and spend on in a shop, but charges a fee of 2% to top it up online or via phone. If the account goes unused for twelve months though, there is a £2 monthly charge.

  However, despite being the cheapest, a few oddities mean it isn’t the clear-cut top pick. First, you have to top up with at least £100 (or £30 on Thomas Cook/Co-op versions); most prepaid cards have a minimum top up of just £10. Also, the 2% fee eats slightly into your cash.

  Second, this is intended as a prepaid card for use overseas, and the versions of the card Travelex most pushes are the Euros and Dollars ones. However, when you click Buy Now on the Travelex website, simply choose to top it up in UK Pounds instead. Yet you must do this EVERY time or you could get hit with exchange rate charges every time you spend.

  Lastly, this is accepted wherever Visa Electron is, which means a few less stores than standard Visa or Maestro, though the vast majority of online retailers will take it.

  QUICK STATS: Card Issue: £0. Top up: 2% (min £3) Spending: FREE. Cash Withdrawal: £0. Min Load: £100/£30 with travel T Cook/Co-op. Replacement fee: N/A

• Extreme Cred. Slightly more costly, but far simpler

  The Extreme Cred charges a one-off application fee of £8.95, plus a monthly fee of £1 and a yearly replacement charge of £3.99. However, retail spending is free and ATM withdrawals are a low £1.

  There are two options to load it up; the cheapest is 70p a time at the Post Office (you can also do it online and it’ll cost up to 3% with a minimum 85p of the amount loaded). The flat-fee means it’s best to load up larger amounts, less often.

  Here, there is a much lower minimum load amount of £10, and it’s a Maestro card so is more widely accepted than Travelex.

  QUICK STATS: Card Issue: £8.95. Monthly Fee: £1 Top up: 70p in Post Office, c.3% online. Spending: FREE. Cash Withdrawal: £1 Min Load: £10. Replacement fee: £3.99/year

Spending Overseas

There’s one large restriction here, the only foreign currencies prepaid cards operate in are Euros and US Dollars, so if you’re going somewhere more exotic, they’re not for you. Also beware, only use the best prepaid cards for this; the rest will slap you silly with charges.

Most cards charge a ‘load fee’ when you make an overseas purchase, yet a couple don’t, and this is the key for picking the best. It's worth reading the cheapest way to spend overseas guide to see if prepaid is right for you first.

• FairFX. The cheapest overall, plus free £5 bonus.

  The FairFX* prepaid card, which must be applied for online, charges no spending or foreign 'loading' fees, and can be topped up for free by debit card or bank transfer. Apply via its own website and there's a £9.95 application fee, but the link above takes you through comparison site Moneysupermarket, meaning the fee is waived provided you load more than €10/$20.
  
  Currently if you top-up at least £500 when opening, it'll boost the amount you load by £5. This bonus means the overall exchange rate challenges the top credit cards for overseas spending. When we compared the rates, the method that gave the most bang for your buck changed daily.
  
  However, with FairFx it's the rate on the day you load up, not spend that counts. So if the pound strengthens after you load the card, you will lose out. Though conversely if it weakens you'd gain.

  The only cost is €1.50/$2 to withdraw cash from an ATM, less than most credit or debit cards. You get FairFx's own exchange rate, which changes daily but generally beats the other prepaid cards and cash rates (compare it with TravelMoneyMax.com's best).

  FairFX Quick Stats. European Load: 0%. Worldwide Load: 0%. Exchange Rate: FairFX's own rate, determined daily. Cash withdrawal fee: €1.50/$2. Currencies: Euros/Dollars. Topping up: Free via Debit card online.

• CaxtonFX. The next cheapest

  Next best is Caxton FX*, again available online, which also has no spending or foreign load fees and can be topped up online or over the phone for free by debit card. You get Caxton's exchange rate, which is usually worse than FairFX but beats the best you’d get for cash.
  
  The minimum amount of foreign currency you can load up the card with is €150/$200, and there's no ATM withdrawal charge outside the UK.

  Caxton Quick Stats. European Load: 0%. Worldwide Load: 0%. Exchange Rate: Caxton's own rate, determined daily. Cash withdrawal fee: None outside UK, €2/$3 in the UK. Currencies: Euros/Dollars/Sterling. Topping up: Free via Debit card online/phone.

• Travelex Cash Passport. Extra currencies or if you need a card quick

  Not far behind is the foreign exchange giant Travelex’s Cash Passport, which also offers a few more currencies, namely Euros, US Dollars, South African Rand and Australian, Canadian and New Zealand Dollars.
  
  There's no fee for spending abroad, but it does charge 2% when you top up online, by phone or in stores. You’ll get the prevailing Travelex exchange rate, generally not as good as FairFX/Caxton, and the exchange rates you get on the best credit and debit cards.

  The big boon over the above cards is it's available at Travelex branches, plus Thomas Cook and Co-op Travel agents, meaning you can get one mega quick if your holiday is soon, though buy there and you can only then top-up in branches (not online), and you'll be charged that shop's commission.

  It charges a £2 monthly charge if the card goes unused for twelve months. If you’re heading towards that situation, simply cancel the card as it’s rarely worth it.

  Travelex Quick Stats. European Load: 0%. Worldwide Load: 0%. Exchange Rate: Travelex's own rate, determined daily. Cash withdrawal fee: £0. Currencies: Euros, US Dollars, South African Rand and Australian, Canadian and New Zealand Dollars.. Low Usage Charge: £2/month if unused for 12 months. Topping up: 2% (min £3).

Top card to rebuild your credit rating

If you’ve been rejected for credit cards or other financial products, first do a free credit check with the main three Credit Reference Agencies to check whether there are any errors and see what you can do to improve it.

One way of doing this is the Cashplus Creditbuilder* card, which costs £4.95 to open. It charges a £4.95 monthly fee, which technically counts as a £59.40/year loan. As long as you pay the fee every month for a year, this info will be passed on to credit reference agency Experian.

Crucially, as with all prepaid cards, no credit check is needed to get the card. Once you've made 12 payments, it should show on your credit history as a fully repaid loan agreement, making you a more attractive customer (to those companies who use Experian for credit scoring, which is the vast majority of them) and hopefully meaning you can apply for better credit card and loan deals. Though you are of course paying £70 for it!

This is also a rarity among prepaid cards, in that it does give you Section 75 protection, meaning pay for something costing between £100 and £30,000 on it, and the card issuer's equally liable with the retailer if something goes wrong.

There is, however, a major warning needed here…

NEVER EVER miss a monthly payment. Diarise every one; miss just one and you’ll be in a worse position than when you started.

What happens after a year?

The interest-free loans are over a year, at which point the credit reference agency Experian gets told you’ve fully repaid it. At that point, consider whether you want the card for another year (costing another £60), or whether to try to get a credit card and cancel the prepaid card.

Don’t just leave the card open if you don’t need it any more, as it’s a waste of cash.

What to watch for with prepaid

This type of card has some great strengths, it's useful for budgeting, you can’t spend more than you need, it's easy to obtain and you can have as many as you like. Yet as well as the fee complexity there are some other things to watch for:

• No protection if the bank goes bust.

  Money held in a current account is protected by the Financial Services Compensation Scheme in the event that the bank went into default (read Savings Safety guide). With prepaid cards, there's no such protection, so while I’m not warning against them, don’t use them to store all your cash; instead load it up with what you need to spend, and no more.

• Credit cards protect purchases, prepaid don't.

  Buy something with a credit card, and you get statutory Section 75 protection. This means buy goods costing over £100 and the card provider is legally jointly liable with the retailer, so you can complain to them and they'll refund you directly (particularly useful for overseas purchases). This isn’t the case with most prepaid cards (or debit cards, cash and cheques for that matter), so your consumer rights are diminished.

• Need to top up before spending.

  This one’s rather obvious, but still a consideration. Whilst it might help you stick to a budget, if you need to spend quickly, going prepaid can slow you down; you’ll need to call, go online or visit a store to load enough funds on to it.

• Cap on usage.

  Most prepaid cards have a maximum amount they can hold at any one time (commonly £3,000 – £5,000), plus some cap how much you can spend on it in total over a year (usually £15,000 or over) though anyone spending over this amount should probably be able to get a debit card to back it up.