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Prepaid Cards

Alternatives to credit or debit cards

prepaid cards
Karl Talbot
Karl Talbot | Edited by Johanna Noble
Updated 8 April 2020

Prepaid cards let you load cash on to them before spending on them in shops or online. Or they can be used like a bank account if you can't get or don't want one. In this guide, we run through how to use prepaid cards, and the best buys.

Prepaid card best buys

In this guide

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. But, remember the crucial point:

If you haven't loaded money on it, you can't 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.

Six prepaid card need-to-knows

Before you check out the best buys below, here are some useful need-to-knows...

  • 1. They can help adjust your spending habits

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

    That's because prepaid cards don't allow you to spend more than you have on your card, so if you're prone to doing this on your normal debit or credit card, a prepaid card could help curb this habit. Plus, you don't have to worry about missing out on perks as some prepaid cards also offer cashback and discounts on well-known retailers.

    Prepaid cards can also be good to give to your children if you want to keep an eye on their spending. For a more extensive analysis of prepaid cards and bank accounts aimed at under-18s, see our Top cards for under-18s guide.

  • 2. They DON'T have section 75 protection

    Prepaid cards aren't like credit cards, which offer Section 75 protection as part of the Consumer Credit Act. However, you'll have access to Visa and Mastercard's charge back schemes instead.

    Charge back schemes give you a chance to get your money back if you buy faulty goods, a service isn't provided, or a company goes bust and goods aren't delivered. You'll get your money back straightaway. Our Charge back guide explains how it works.

    Quick question

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

      There are safeguards, but it's important you know that funds on a prepaid card don't have the same protection as money in your bank account or savings account.

      Money on prepaid cards is classed as 'electronic money', and all prepaid card providers have to hold your cash in a bank account ring-fenced from their own operating cash. This mitigates against the risk of the card issuer going bust. In that event, your money would be protected as it'd be in a separate account.

      But there's an important caveat here. Your cash wouldn't be protected if the bank or building society your money was ring-fenced in went bust. It's not counted as a deposit, in the way that cash in a savings account would be, and therefore, it's not protected.

  • 3. You may not be able to use them everywhere

    You may have difficulty using prepaid cards for transactions that require a security deposit or pre-authorisation. 

    And even if you are able to you may not want to. When you offer a card for a deposit for services such as hotel rooms or car hires, or in-flight purchases, the company will 'lock' funds on the card for the duration of the hire and you won't be able to use it until the final bill has been settled and cleared.

    So, if you can, use another card as a security deposit, preferably a credit card.

  • 4. There may be fees, so check...

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

    • Application fees – 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 and £5).
    • Renewal fees – Like standard Visas 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 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 you're 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 you're 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?

  • 5. Some specialist prepaid cards can be cheap for overseas use

    If you 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'll also get the additional perk of preventing ID theft and fraudulent transactions, as prepaid cards work like an electronic travellers' cheque.

    However if you do want a prepaid card to use abroad, it's best to pick a specialist card that offers cheap (or free) overseas transactions. To see our best buys, take a look at our Prepaid Travel Cards guide.

  • 6. It's worth seeing if you can get a credit card instead

    Prepaid credit cards are a god option 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.

    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.

    A prepaid card 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. (For a more extensive analysis of prepaid cards and bank accounts aimed at under-18s, see our Top cards for under-18s guide).

    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.

Best prepaid cards

The following cards are our current top picks, based on low fees or other perks. See if there's one that is right for you.

Health Service Discounts Cashback Card 

For NHS staff. Get up to 5% cashback on everyday spending – free in year one

Apply

If you work in the NHS, the Health Service Discounts Cashback Card is free in the first year (£2.99/yr after) and gives cashback on spending in store and online at a wide range of retailers including Asda, Boots, M&S, Sainsbury's and Waitrose (see FAQs for full list).

If you already shop at these stores, using this card is an easy way to get 2.5% to 5% cashback, since you can top up small amounts before you shop – the minimum top-up amount is £5 to start and then £10 for further top-ups.

You can track the cashback you accrue in your online account or using the card's app. Once processed (normally within seven days), cashback is added to your account when you next top up and is then available to spend.

Application fee: None
Annual fee: £2.99 (free in first year)
Top-up fee: None
ATM fee: N/A – can't withdraw cash from card
Transaction fee: None
Card issuer: Visa
Overseas fees: 2.5% on spending (can't withdraw cash from card)
Fee to get your cash off the card: £5
Inactivity fee: £5/mth (see FAQs)

  • Can I get it?

    The card is only open to current NHS employees – you'll need a valid NHS email address to sign up.

    If you work in the NHS but don’t have an NHS email address, Health Service Discounts suggests contacting your HR or IT department to get one.

  • Is there a credit check?

    No. As it's a prepaid card rather than a debit or credit card, you don't need to pass a credit check to get one and the card won't appear on your credit report.

  • How much cashback will I get?

    We've rounded up the cashback rates for some major retailers in the table below – or you can browse the full list on the Health Service Discounts website.

    Retailer Cashback amount
    Argos 5%
    Boots 5%
    John Lewis 5%
    M&S 5%
    Sainsbury's 3%
    Waitrose 3%
    Asda 2.5%

    Note: Cashback is usually processed within seven days (though it takes three to four weeks for Sainsbury's). It's then added to your account when you next top up.

  • What's the inactivity fee and how can I avoid it?

    If you don't use the card at all for 12 consecutive months, there's an inactivity fee of £5/mth – so if you're not using the card, it's best to close it down to save on both the inactivity fee and the £2.99 annual fee which kicks in after the first year.

  • Are there any other fees?

    The card is free for the first year. After that it's £2.99/yr (this is deducted automatically from your balance).

    Lost cards cost £10 to replace.

  • Are there any restrictions on using the card?

    You can't withdraw cash from the card.

    You also can't use it to repay debts (eg, credit cards), to buy foreign currency or adult entertainment or for gambling/betting transactions.

APPLY

Monese 

Fee-free spending and cash withdrawals in the UK and abroad, but limits apply

Apply

The Monese Simple prepaid card will cost you nothing if you keep within certain limits. It's free to spend both in the UK and abroad, though there's a 2% fee (min £2) if you spend more than £2,000 overseas in any given month. It also allows free worldwide ATM withdrawals up to £200 (a 2% fee applies above this, min £2). If you want higher limits, Monese offers Classic and Premium cards, but both have a hefty monthly fee.

While the card uses the near-perfect Mastercard exchange rate on overseas transactions, if you're looking for a prepaid card to use abroad, see our Prepaid Travel Card guide to compare this against other cards.

Application fee: £4.95 for card delivery
Monthly fee: None (Simple card)
Top-up fee: Up to £200/mth free (2% fee above this, min £2)
ATM: Up to £200/mth free (2% fee above this, min £2)
Transaction fee: None
Card issuer: Mastercard
Overseas fees: Spending: 0% (2% above £2,000/mth); ATM: 0% (2% above £200/mth, min £2)
Fee to get your cash off the card: Free

APPLY

Transferwise 

Fee-free to use in the UK, but fee-free withdrawals are limited

Apply

Transferwise's Borderless account is designed for overseas use as it allows you to spend and withdraw cash at the perfect 'interbank' exchange rate – though it does charge fees. 

The card costs £5 upfront but it's free to use in the UK after that as long as you don't spend in a foreign currency and don't withdraw more than £200 in cash in any 30 day period (a 2% fee applies on any withdrawals over the free limit).

Note: If you are looking for a prepaid card to use abroad, see our Prepaid Travel Card guide for a list of cards to compare.

Application fee: £5 for card
Monthly fee: None
Top-up fee: None
ATM (UK): Up to £200/mth free (2% fee above this)
Transaction fee (UK): None
Card issuer: Mastercard
Overseas fees: Spending: 0.35% - 1% exchange fee (depends on currency); ATM: up to £200/mth free (2% fee above this)
Fee to get your cash off the card: Free 

APPLY

Best for teenagers

If you're looking for a card to give to teens so they can learn how to manage their money, then it's worth checking out our guide analysing the Top cards for under-18s. It covers the best prepaid cards and children's bank accounts 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.

Prepaid cards and bank accounts for kids offer different features so depending on what your child (and you!) want, one could be better than the other.

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.

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Prepaid Cards

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