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Prepaid Cards

Alternatives to credit or debit cards

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Liane | Edited by Johanna

Updated August 2016

Prepaid cards let you load cash on them and spend anywhere credit or debit cards are accepted. They're good to get if you're usually rejected for credit, or to give to your teens to help teach them how to spend responsibly.

This guide helps you understand what prepaid cards are, decide whether you should get one, and give you the best buys for your circumstances.

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, thatís pretty much where the similarities end. First, thereís the crucial point:

If you havenít loaded money on it, you canít spend on it.

Think of them like pay-as-you-go mobile phones. You can't spend beyond £0, forming a 'safe' barrier if you tend to overspend.

Another bonus is that you won't get credit-checked when you apply, making the application process much simpler. They're a good option for those who have just moved to the UK, or have a bad credit history.

Some people worry they may not be able to use a prepaid card in a lot of places. But most prepaid cards are Mastercard or Visa, meaning just like credit or debit cards, they're accepted by most retailers in the UK and abroad.

Who are they for?

  • Those who dip into their overdraft - great for everyday spending

    Everyday spendingIf you struggle with budgeting, then a prepaid card may work out cheaper instead of accidentally dipping into a pricey overdraft on a regular basis.

    You'd spend as you normally would using a debit or credit card, but you don't have to worry about missing out on perks - some cards also offer cashback and discounts on well-known retailers.

  • Teenagers

    Most children's bank accounts come with a debit card, but the worry is that they can spend all of the money in the account. With prepaid cards, parents can set maximum limits and keep an eye on their spending.

    It might also be useful for school trips. If your child loses cash on a school trip, it can't be recovered. But if he or she loses a prepaid card, you can block the card by reporting its loss straight away.

    There may be a small application fee, so you'll have to weigh up whether the costs of a prepaid card are worth your peace of mind. See How much will they cost me? to get a better idea of the fees.

  • Bad credit

    If youíve got bad credit and have previously defaulted on loans, or have county court judgments (CCJs), your credit file wonít be in good shape. If your default is recent or if you haven't settled your CCJ, forget about applying for normal credit cards. Youíll be rejected, itíll leave a footprint on your credit file and youíll end up in a rejection spiral.

    Prepaid cards could help you adjust your spending habits, and some can even boost your credit rating.

    Cashplus One way of doing this is the Cashplus Creditbuilder card, which costs £5.95 to open. It charges a £5.95 monthly fee (so in total, 13 lots of £5.95 as you're paying two in the first month), which technically counts as a £71.40/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.

  • Spending abroad

    Spending abroad

    You can also get a prepaid card to use abroad. You'll eliminate the worry about theft and overspending as you won't need to carry wads of cash around. You've got the additional perk of preventing ID theft and fraudulent transactions, as prepaid cards work like an electronic traveller's cheque.

    You may have to pay an application fee (between £2 and £7) and other costs to operate your prepaid card, but choosing to use one specifically designed for spending abroad will generally have lower, or no transaction and withdrawal fees, compared to debit or credit cards.

    For more info, go to our Cheap Travel Cards guide to see how much you'd pay to use a specialised prepaid card abroad.

Should I get a prepaid card?

For most people, getting a normal credit or debit card will be the sensible financial decision, but it all depends on why you want the card.

It could be a useful tool if you're on a tight budget as you can only spend what you've loaded onto the card. If you're a parent wanting to teach the benefits of money management to your child, it might also be a good option. Or if you want to stay safe online, you might opt for a prepaid card.

But in a nutshell, whether you should get one boils down to one thing - how financially attractive you are. If you can easily sign up for a credit card, and you have the discipline to pay it off IN FULL, every month - do that instead.

Are you eligible for a credit card instead?

Prepaid credit cards should only be a last resort for everyday spending if you can't get a credit card. Use our Eligibility Calculator tool, which leaves NO credit file mark, to see how likely it is you'd be accepted.

We do a 'soft' credit search which YOU can see, but lenders CAN'T, so it has no impact on your future creditworthiness.

We map the details you give us against lenders' criteria, including your chances for cards on this page, where we can.

Check your eligibility here
Quick questions:

Is my cash safe on a prepaid card?

What if I bought a faulty laptop on the prepaid card and the supplier went bust?

Can I use a prepaid card for pre-authorisation and security deposits?

How much do prepaid cards cost?

There are a number of fees associated with prepaid cards that you need to keep an eye out for:

  • Application fees Ė You pay this one-off charge to open the account. Prices range from nothing to £10.

  • Monthly fees - Some cards require a monthly fee (typically between £2-£5).

  • Renewal fees - Like standard Visa or Mastercards, prepaid cards are only valid for three years, so you may have to pay a renewal fee if you want to carry on using it. It's usually about the same price as the application fee (typically £2 to £7), however it could be waived if you top up a certain amount.

  • Transaction and ATM feesTransaction and ATM fees - For every transaction you make, both online or over-the-counter in shops, you could be charged a fee, usually about 50p. The same applies for ATM withdrawals. These will either be a percentage of what you withdraw, or a set charge, eg, 3% or £2. Decide how youíre most likely to access your money and stick with the cheaper option.

  • Inactivity fees - Some may charge you a small monthly fee if your account is dormant, (if you don't make any transactions for, eg, three months). So just make sure you keep the account running - buy a packet of crisps if push comes to shove - to ensure youíre using prepaid cards in the most cost-effective way.

  • Redemption fees - You'll be charged a fee if you want to get money back from the card you haven't used. On average this is £10, so how much you have left on the card will decide whether this is worth taking the hit for.

The costs of using a prepaid card can add up easily, so look at the fees associated with the card before you take it out. Do the benefits of using the card outweigh the costs?

Getting a prepaid card is my only choice. How can I keep costs low?

Best for spending

Pockit

Lowest running fees, plus get a free £5 and up to 10% cashback

Pockit*

Unusually for a prepaid card Pockit* pays up to 10% cashback on your spending at select retailers, including M&S (currently 6%), New Look (currently 7%), Ernest Jones (currently 10%) and B&Q (currently 5%). It's also one of the cheapest around, as fees are low - it's free to spend, although you will pay if you use the card to withdraw cash.

Plus as long as you make at least three transactions in the first month after signing up you'll get a free £5.

We’ve had mixed feedback in the past about this card, though recent feedback has been positive. Let us know if you have any issues.

Need to knows
  • The card costs 99p to get, as does each additional card, but there's no ongoing monthly fee.
  • If you withdraw cash using the card, it costs 99p each time.
  • The card's free to load by bank transfer and debit card, though you'll pay 99p to use Paypoint.
  • You could use the card alongside cashback sites to maximise money earned - although only the Pockit cashback is guaranteed.
  • Don't use this card to spend abroad - it charges a horrible 4% foreign exchange fee and £2.25 cash withdrawal fee.
  • The main cardholder must be 18+ but additional cardholders can be as young as 13.
  • Application fee: 99p
  • Monthly fee: None
  • Top-up fee: Free by bank transfer or debit card, 99p using Paypoint
  • ATM: 99p (UK)
  • Transaction fee: None
  • Card issuer: Mastercard
  • Overseas fees: 4% load fee, plus £2.25 to withdraw cash
  • Fee to get your cash off the card: Free
Kalixa Pay

Good to use for spending in the UK

Optimum

The Optimum contactless card has no fees for spending in the UK and if you use it right, there's no cost to you after the £5 application fee.

It does charge for ATM cash withdrawals and foreign transactions though, so it's not a great all-rounder. However, if you just use it for UK spending and top it up by debit card, standing order or online banking, it's totally free after your initial £5 outlay.

Need-to-knows
  • There's a £5 application fee to get the card, but then it's free to use for spending.
  • Watch out for ATM withdrawals, as they're not cheap, at 2.95%.
  • If you were an Orange Cash cardholder you would have been transferred to this card automatically.
  • Don't use this for foreign spending Ė look at a fee-free prepaid travel card instead.
  • Application fee: £5
  • Monthly fee: None
  • Top-up fee: Free by bank transfer, standing order or debit card
  • ATM fee: 2.95%
  • Transaction fee: Free in the UK, 2.75% abroad
  • Card issuer: Mastercard
  • Fee to get your cash off the card: £5

Best for teenagers

If you're looking for a card to give to teens so they can learn how to manage their money, these are our top picks. We picked cards that allow parents a certain level of control over the cash, while still giving teens an easy way of spending both in stores and online.

These three cards have fees - the first has an application fee, and then charges per transaction, the second fair usage fees (although these aren't restrictive) and the third card a monthly fee, but then transactions are free. So it's best to choose based on likely usage - if you'll make lots of transactions, the monthly fee card could be better, if not, then better to pay per transaction.

Osper logo

One month fee-free, plus free £5 when you top up £5

Osper

Although you'll need a smartphone to operate its (required) app, the Osper prepaid card is almost entirely fee free for the first month (some fair use and international fees). Parents can order up to four cards for their children who must be between 8 and 18. Then, using the Osper app (iOS & Android), parents can load money and set monthly or weekly allowances. The app also allows parents and kids to budget and see how the money is being spent.

Need to knows
  • The card is free for the first month (£18 per year thereafter).
  • It's aimed at children and teenagers so you can't use it to spend in gambling shops, some establishments which serve alcohol or for dating services
  • Don't use this card to spend abroad - it charges a horrible 3% foreign transaction fee and £1 cash withdrawal fee.
  • Your money's ringfenced if the card issuer goes bust, but the card is registered in Gibraltar. See the key info for what this means.
Stats box
  • Application fee: Free
  • Monthly fee: None (£18/yr after first month)
  • Top-up fee: Free by debit card only
  • ATM fee: Free
  • Transaction fee: Free
  • Card issuer: Mastercard
  • Overseas fees: 3% transaction fee, plus £1 to withdraw cash
  • Fee to get your cash off the card: Free in first year (£5 after)
Key Info

What happens to my money if the card issuer goes bust? Osper's cards are issued by IDT Financial Services Limited, which is a company registered in Gibraltar. Although it is licensed to operate in the UK by Mastercard, and registered with the Treasury, it is regulated by the Financial Services Commission of Gibraltar (the counterpart to the UK's FCA).

Customer funds are held in a ringfenced bank account with NatWest that Osper cannot access.

Although this means your funds have a certain level of protection, we cannot say how quickly you'd be able to your money back in the worst case scenario and for this reason, it's probably not a good idea to deposit large sums of money onto the card.

GoHenry

Not the cheapest card, but helps supervise kids' spending

GoHenry*

This isn't the cheapest card, but if you want to teach your child(ren) how to budget, the GoHenry* card is designed for this. You need to be over 18 to get it, but once you have an account, you can apply for up to four child cards (kids must be 8 or older). You can then also download an app (or use the website) which'll allow you to set spending limits, and also monitor what your kids are buying and where.

Need to knows
  • The cards are free to get although they charge a monthly fee of £2.49 (per card).
  • It's aimed at children and teenagers so you can't use it to spend in betting shops, off-licences or to buy with retailers with age limits.
  • Don't use this card to spend abroad - it charges a horrible 2.75% foreign exchange fee and £2 cash withdrawal fee.
  • Your money's ringfenced if the card issuer goes bust, but the card is registered in Gibraltar. See the key info for what this means.
Stats box
  • Application fee: None
  • Monthly fee: £2.49 per card
  • Top-up fee: Free by bank transfer, 50p by debit card
  • ATM fee: Free
  • Transaction fee: Free
  • Card issuer: Visa
  • Overseas fees: 2.75% load fee, plus £2 to withdraw cash
  • Fee to get your cash off the card: Free
Key Info

What happens to my money if the card issuer goes bust? GoHenry's cards are issued by IDT Financial Services Limited, which is a company registered in Gibraltar. Although it is licensed to operate in the UK by Visa and registered with the Treasury, it is regulated by the Financial Services Commission of Gibraltar (the counterpart to the UK's FCA).

If GoHenry or IDT were to go bust, then Visa are contractually bound to return any funds that customers have deposited on their GoHenry cards. Customer funds are held in a ringfenced bank account with NatWest that GoHenry cannot access.

Although this means your funds have a certain level of protection, we cannot say how quickly you'd be able to your money back in the worst case scenario and for this reason, it's probably not a good idea to deposit large sums of money onto the card.

Best for rebuilding your credit

If your credit file's a sea of defaults, then you're not likely to be able to get a credit card, even one designed for poor credit. But there is a card you can get which purports to improve your credit file, helping you re-establish a good payment history.

Before going for this card - as it's not cheap - it's worth checking if you're likely to get any other, free cards by using the eligibilty calculator in our Credit Cards for Bad Credit guide.

If it's a no-go, then see if this card's right for you...

Cashplus

Expensive to run, but gives a one-year 'loan' to help rebuild your credit

Cashplus Credit Builder*

The Cashplus* card could help you improve a poor credit score, though it'll cost you £77 for the year to do it. Basically, you pay an application fee of £5.95, then you're 'loaned' £71.40 which you pay back in 12 £5.95 monthly instalments. This is then reported on your credit file, showing a history of good payment.

Need to knows
  • The card costs £5.95 plus a £5.95 monthly fee.
  • You have to select the 'Creditbuilder' function when you apply for the card.
  • Never miss a monthly payment as it'll negatively affect your credit score.
  • The card comes with purchase protection - which'll cover you if a retailer you buy from goes bust.
  • You can also earn cashback on spending from 100s of retailers including Boots, Tesco, BT and M&S.
  • Application fee: £5.95
  • Monthly fee: £5.95
  • Top-up fee: Free by bank transfer, standing order and at the Post Office
  • ATM fee: £2
  • Transaction fee: Free in the UK
  • Card issuer: Mastercard
  • Fee to get your cash off the card: £10

Cashback sites may pay you for signing up

As an extra boon, members of specialist cashback websites can be paid when they sign up to some financial products. Do check that it's exactly the same deal though, as terms can be different. And remember the cashback is never 100% guaranteed until it's in your account. 

Full help to take advantage of this and pros & cons in our Top Cashback Sites guide.