Beware hidden charges on prepaid cards

More and more holidaymakers are opting to take a prepaid card with them when they jet abroad. With the majority of debit and credit cards charging for foreign usage, a prepaid card can work out cheaper. However, some cards have hidden fees that could catch you out if you’re not careful, with your transaction ending up costing more than you were expecting.

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It’s not surprising that paying with plastic is a popular option with travellers as it’s convenient and safe. But if you use your standard debit or credit card while you’re away, chances are you’ll pay a fee. Most card providers levy a ‘loading’ fee on overseas transactions, usually between 2.5% and 3.0% of the value of the purchase.

You are also likely to pay a withdrawal fee if you take money out of an ATM. Cash withdrawal fees also tend to be around 3.0%, usually with a minimum charge of £2.50.

These costs can soon mount up. Research from the Post Office estimates that foreign usage fees will cost British holidaymakers around £200million this summer, yet they are a cost that can be avoided.

Prepaid cards are frequently marketed as a great fee-free alternative to traditional credit or debit cards. They use the Visa or Mastercard payment networks so can be used wherever you see those logos. And they work in a similar way to a pay-as-you go mobile in that you load money onto the card and then top it up as and when you need. However, some are better value than others as there are a number of fees and restrictions that can be levied.

The fees to watch out for

Card issue fee

A number of providers charge for their prepaid cards. The Escape Travel Money Prepaid Mastercard, for example, costs £9.99. However, there are plenty of cards that are free so you shouldn’t need to pay for one.

Cash withdrawal fee

One of the reasons many people choose to take out a prepaid card is because most debit cards charge a fee to withdraw cash from an ATM if you are abroad. Some prepaid cards do the same though, so this is something to watch out for. With the Cashplus card for example, you’ll be charged £3.00 for withdrawals from non-UK ATMs.

Dormancy fee

Some providers will levy an administration fee if your card is not used for a certain period of time. Cashplus charges an ‘account maintenance fee’ of £4.95 per month on accounts where there is money on the card but it hasn’t been used for 120 days. Given that many people only use their prepaid card when they’re abroad on holiday, this type of thing could easily catch you out.

Cancellation fee

While you could be charged a fee if you don’t use your prepaid card regularly, you may also be charged for closing your account down. For example, you’ll be charged £10 to cancel a World First Euro Prepaid card.

Load restrictions

All debit and credit cards limit the amount you can withdraw in cash each day and with credit cards there is obviously a credit limit that restricts the amount you can spend. Prepaid cards also have limits on the maximum you can withdraw within a certain period of time. However, some also cap the amount you can load onto the card each year. The Escape Travel Money Prepaid Mastercard for example, restricts you to loading a maximum of £650 in a 12-month period. With Caxton FX on the other hand, you can load up to £40,000 a year onto the card.

So which are the best prepaid cards?

The other thing to bear in mind with prepaid cards is that exchange rates vary depending on the provider.  They all use the wholesale MasterCard or Visa rate so you tend to get a better rate of exchange than if you bought cash at a foreign exchange bureau or bank, but most add an element of commission and this can be harder to factor in when comparing deals.

To help, we ran comparisons to see how some of the leading deals compare. We looked at how much it would cost in sterling to make €1,500 of purchases (in 10 separate purchases) and two cash withdrawals totalling €750. Here’s how they stacked up:

Prepaid Card Total fees based on €1,500 of purchases and €750 of cash Total £ cost based on €1,500 of purchases and €750 of cash Cost differential from the cheapest

FairFX* Anywhere

 £2  £1,823.13  

CaxtonFX Global Traveller

 None  £1,827.78  +£4.66

Travelex Cash Passport

 None  £1,835.24  +£12.11

Post Office Travel Money Plus

 £3.18  £1,839.91  +£16.97

Moneycorp Explorer

 None  £1,867.12  +£43.99

Virgin Money Prepaid Travel Money

 £2.38  £1,889.96  +£66.84

*£10 extra credited to your card if your initial card load is £500 or more when you apply through MoneySupermarket. Sourced by: www.moneysupermarket.com 09.07.2012 between 1.30pm and 2.30pm

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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