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What is a prepaid card?

Prepaid Cards: What are they and how do you use them?

Prepaid cards are an alternative to using cash, and don’t require you to open a bank account. Our guide explains how prepaid cards work, from topping them up to travelling abroad.

By Lucy Hancock

Published: 23 April 2021

Woman using card to pay

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What is a prepaid card?

Prepaid cards are an alternative to carrying money around and are often known as everyday cards. They're ideal if you don't have a bank account, but you want the security that comes with cashless transactions.

Unlike a debit or credit card, you top them up when you need to – which can help with budgeting.

How do prepaid cards work?

When getting a prepaid card, you load it with money when you first buy – then top it up when it runs out, just as you would with a pay-as-you-go phone. Unlike a credit card, you can’t run up debt on it and you won’t be credit checked when you apply.

For this reason, you can have as many prepaid cards as you like in your wallet. Do keep in mind that prepaid cards come with different balance limits and the way you top up can affect that limit, so make sure you read the terms and conditions beforehand.

How do I top up my card?

Prepaid cards can be topped up in a few ways, including:

  • Online: You can top up your prepaid card by signing in to your account on your card provider’s website or app, and topping up the card using your credit or debit card 
  • Bank transfers: You can send a bank transfer to your credit card from your bank account. You should be able to find out the sort code, account number and reference you need to use from your prepaid card provider
  • Paying in money: You can pay in cash into your account at some banks, the post office or a shop or petrol station that offers a PayPoint service
  • Someone else: Others can top up your prepaid card – your employer can send your pay to your prepaid card if you use it instead of a standard bank account

When it comes to withdrawing money from your prepaid card, you just insert your card into a cash machine, enter your PIN and follow any onscreen instructions. Do bear in mind that some prepaid cards charge a fee when you withdraw money.

Are prepaid cards safe?

With prepaid cards, the money you top up your card with is considered electronic money (otherwise known as e-money). So where safety is concerned, your money isn’t protected by the Financial Services Compensation Scheme (FSCS). 

This doesn’t mean prepaid cards aren’t ‘safe’, but it does make you that bit more responsible for where your money is kept. One option would be to only put the money you need to on your prepaid card, for things like immediate spending.

While prepaid cards aren’t covered by the FSCS, they are still regulated and protected by the Financial Conduct Authority (FCA). Providers must trade as an authorised ‘E-Money’ institution before offering a prepaid card service.

What is a prepaid travel card?

When it comes to travelling abroad, prepaid travel cards (also known as prepaid currency cards) can be a way to keep your money safe while you’re on holiday. If your wallet is lost or stolen, you can contact your card company to have the card blocked so it can’t be used.

Prepaid travel cards are also useful for budgeting, especially while on holiday where it’s easy to overspend. They’re also an option for your children while on holiday, to teach them how to manage their money.

When it comes to loading prepaid travel cards, you’ll top it up before you set off with the currency you need, whether that be euros, US dollars or pounds. That way, you’ll know what the exchange rate is before you set off on your adventure.

Advantages of prepaid cards

Prepaid cards come with their advantages, including:

  • Budgeting: They can help you budget your money – you can manage your spending by topping it up when you need to
  • No credit checks: Unlike a credit card, you can’t run into debt with a prepaid card and won’t be credit checked when you apply
  • Travelling: They’re also useful if you’re looking to stick to a budget while abroad and to keep your money safe – if your card is stolen, you can contact your provider who will then block it

Disadvantages of prepaid cards

Prepaid cards can have disadvantages depending on what you’re using them for and your personal circumstances. These disadvantages may include: 

  • No section 75 protection: If you use a credit card to buy something over £100, you’re covered if there’s a problem - this isn’t the case with prepaid cards
  • Fees: There are a range of potential fees with prepaid cards – getting the card in the first place, monthly fees (there are some without), charges when withdrawing money from a cash machine
  • Charged when spending: Some prepaid cards charge you for using them to pay for goods. You may be charged a small amount each time you spend

Credit-builder prepaid cards

While prepaid cards are essentially meant to avoid letting you run up debt, 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, a prepaid card may suit you.

Prepaid cards usually charge a monthly fee and as long as you pay it on time every month, your record will be improved as the fee is seen as a loan. In rare cases, some will even give you credit which can help to put your record back on track. But do remember to stick to all the terms and conditions otherwise you could end up back at square one.

Please note that prepaid cards are not eligible for protection under the Financial Services Compensation Scheme.

Compare prepaid cards

With so many types of prepaid card and providers out there, choosing the right card for you can feel overwhelming. But that’s where MoneySuperMarket come in.

Whether you’re after a standard prepaid card, or one to travel with, we compare deals from the UK’s leading card providers and banks, so you can choose the right prepaid card for you.

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.

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