A pre-paid card can be a much cheaper option than a debit or credit card - and you don’t need a good credit score to apply. You simply load the card before you go and then use it as you would an ordinary debit or credit card, but, as they are specifically designed for overseas use, charges are usually considerably lower. You can only spend what is on the card, although you can top it up when you need to, so they are useful for budgeting too.
But as with most forms of plastic, some of these cards are much more competitive than others, and there can be catches to watch out for. Here, we explain all you need to know and reveal the best pre-paid cards to pack this summer…
Why choose a pre-paid card?
If you use your usual debit or credit card while you are abroad, most of these impose a foreign currency charge of between 2.75% and 2.99% every time you use them. So if you spend £100, you'll be charged £103. And if you use them to withdraw cash, you’ll be hit with another charge, usually 2.5% - plus you’ll have to pay interest on top of this if you’re using a credit card.
There are pre-paid cards available, however, that don’t impose a foreign currency charge when you spend, or cash withdrawal fees, making them a much more cost-effective option.
You do need to read the small print carefully before applying, however, as some pre-paid cards charge you to make top-ups, typically around 3% of the amount you put onto the card.
Some also charge an application fee, and then a replacement card fee as the cards usually only last for a year.
Best pre-paid cards
The FairFX pre-paid card is one of the best cards on offer, as it doesn’t have any spending or foreign loading fees. It usually has an application fee of £9.95, but if you apply for it through moneysupermarket.com, you don’t have to pay this fee, on condition that you load the card with more than €60 or $75.
You will have to pay €1.50 or $2 every time you withdraw cash using the card, but this is still much lower than the fees charged by most debit and credit cards.
When you load the card, you will get FairFX’s exchange rate, which is normally pretty competitive. Bear in mind however, that if you load the card a long time before you go away and the pound subsequently strengthens, you won’t be able to benefit. On the flip side, however, if the pound weakens, you will be in a stronger position.
Until 19 July, FairFX is boosting the exchange rate by around 0.5% on its euro and US dollar cards if you are loading £200 or more, and will add an extra £5 for top ups of £500 or more.
CaxtonFX’s pre-paid card is also well worth a look, as it doesn’t impose and spending or foreign loading charges either. The exchange rate isn’t usually quite as good as FairFx’s however, but on the plus side there aren’t any cash withdrawal charges if you use the card to take out money abroad.
Remember that these two pre-paid cards are only available in euros or US dollars, so if you are travelling somewhere with a different currency, you won’t be able to use them.
Another option is Travelex’s Cash Passport pre-paid card, which can be loaded with a wider range of currencies including the South African Rand, and New Zealand and Australian dollars. Again there’s no fee for spending abroad, nor any cash withdrawal charges, but there is a £2 fee if you don’t use the card within 12 months. The exchange rates offered aren’t generally as competitive as those provided by CaxtonFX and FairFX.
Best credit cards for use abroad
If you don’t have any spare cash available to load a pre-paid card with, and need to borrow money to cover your holiday spending, you should choose a credit card with low foreign usage charges.
The Halifax Clarity card is one of the best for overseas use, as it doesn’t have any foreign exchange fees and doesn’t charge for cash withdrawals either. However, you will be charged interest on the amount withdrawn even if you clear your balance in full.
That said, cash withdrawals are charged at a representative annual percentage rate (APR) of 12.9%, which is much lower than the rates charged by many other cards. So, for example, if you withdrew £200 in cash, you’d be charged around £2 a month in interest.
The card also has a low representative APR of 12.9% (variable) on purchases.
Older travellers may want to consider the Saga Platinum card. It is only for people aged over 50, and has no foreign exchange loading fees, although it does charge a minimum fee of £2 or 2% of the amount taken out for cash withdrawals.
You don’t, however, pay any interest on cash withdrawals provided you repay your balance in full. If you aren’t able to do this, this card has a representative APR of just 11.9% (variable) on purchases. Cash withdrawals are charged at 19.6% APR.
Another good option is the Post Office credit card, which is available to travellers of all ages. This has also has no foreign exchange loading fees anywhere in the world, but there is a minimum £3 charge, or 2.5% of the amount taken out, every time you withdraw cash from an ATM.
You will also be charged a representative 24.1% APR on cash withdrawals even if you repay your balance in full, so you should try and use this card for purchases only if possible.
Interest on purchases is charged at a representative APR of 16.9% (variable).
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.
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