What is a prepaid card?

Prepaid cards explained

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Prepaid cards are simply a plastic alternative to carrying money around and are often called everyday cards.

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Prepaid cards are simply a plastic alternative to carrying money around and are often called everyday cards.

You load them with cash when you first buy them and top them up when they run out just like a pay-as-you-go mobile. They are not a credit card so you can’t run up debts on them. They are good for teenagers, people who are scared their spending will run away with them, and those who don’t have a bank account. 

Prepaid cards can also be used to shop online. Since there’s no credit facility as a rule, if your card number is nicked by fraudsters scamming you on a dodgy website the damage is limited to however much money you have on the card or until you realise what’s happened and ask the prepaid card company to block your card. 

Since you can’t generally use them to borrow, they are good for budgeting and you won’t be credit checked when you apply for one.  For this reason, you can have as many as you want in your wallet. 

How do they work?

When you first buy the card you decide how much money you want to put on it – there’s usually an upper limit on how much you can put on it. Since it’s for day-to-day spending you probably don’t want to put too much on it. Think of it as having cash in your wallet or purse.  

As it starts to run out you can top it up in a number of ways. You can do it in person by going into a shop which accepts them or at the Post Office or a Paypoint. You can also top it up over the telephone or online, though if you do this you will need a bank account for the money to be taken from.  You may be able to add money to it by SMS text and have your wages paid directly to the card. Again for those with a bank account, you can set up a direct debit or standing order to load up your prepaid card regularly. Not all these methods are accepted by all cards, so do check which ways you can use.

They are good for teenagers, people who are scared their spending will run away with them, and those who don’t have a bank account

All prepaid cards are linked to a bank or building society.  They have the MasterCard or Visa logo on them so that you can spend with them anywhere that accepts these card scheme networks just like with a debit or credit card. You will have a PIN to enter when you withdraw cash or pay for items with the card, though some retailers will ask you to sign instead if their payment terminals can’t read prepaid card details.

They are safer than carrying cash as, apart from transactions being protected by the PIN, the prepaid card company will have a record of your card and be able to replace it if you lose it or it’s stolen.  Once you’ve contacted the company it can block your original card so that no-one else can use it.  

How much do prepaid cards cost?

There are a huge range of possible fees associated with prepaid cards so do use our table to compare the different options.  

Firstly, there’s usually a charge for getting the card in the first place. Keep an eye on our table for special deals – some cards waive the fee if you load them with a certain amount such as £40; others run special offers from time to time when they will give out the cards for free. 

Some also have a monthly fee, though there are several without one.  All of them will charge you for using them to withdraw money from a cash machine, though there’s a big difference between the highest and lowest fees.  

Some also charge you for using them to pay for goods. Shopping online or at a bricks and mortar store may be free or you’ll be charged a small amount each time or even a percentage of the amount you are spending. 

These fees can quickly add up so do think about how you intend to use your prepaid card and compare the different cards on our table to see which one is best for you. 

Creditbuilder cards 

Although prepaid cards are essentially meant to avoid letting you run up debts, there are a few which are designed to rebuild your credit history. If you’ve turned to a prepaid card because you’ve been turned down for a credit or debit card as you have a bad credit record, or can’t get a bank account because you’ve had problems in the past, these may be for you.  

They usually charge a monthly fee and provided you pay it religiously every month on time, your record will be improved as the fee is regarded as a loan. It’s rare, but some will even give you credit – say £1,000 -  which again will help to put your record back on track, but do remember to abide strictly by all the terms and conditions otherwise you’ll be back to square one.

Prepaid cards are not eligible for protection under the Financial Services Compensation Scheme

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