What is a prepaid card?
Prepaid cards are sometimes called ‘everyday cards’ and are basically an alternative to carrying around cash with you.
You can load the card with your own money (there is usually a limit on how much) which helps to budget your spending. With prepaid cards, there isn’t usually an overdraft facility so you can only spend your own cash. If you want to buy something and the funds aren’t there, your card will be rejected.
When applying for a prepaid card, you won’t be credit checked as it’s your own money. This makes a great tool when trying to become disciplined with your spending.
How do prepaid cards work?
Once you’ve got your prepaid card, you can load it up with cash almost instantly. There are set limits to how much you can put on so make sure you choose the card with the most suitable limit for you.
When you’re ready to top-up the cash on your prepaid card, you can visit a Post Office, Paypoint or even some shops will accept prepaid card top-ups. Depending on your card provider, you could also top-up by giving them a call or going online, but you will need a bank account to do so.
Even though prepaid cards aren’t bank accounts, your wages can still be loaded onto the majority of cards providing an alternative to a bank account. Direct debits/standing orders from your bank account can be sent to the card if you’re looking for regular top-ups. 7
Where can I use a prepaid card?
Prepaid cards are generally accepted wherever you see the MasterCard or Visa logo in shops and online. They can be used like a credit and debit card so you will be given a PIN number and be able to use the usual card machines you find in store.
You can also use your prepaid card to shop online but make sure the websites you use are safe and secure as your money will not be protected like it is with a credit card.
What happens if I lose my prepaid card?
Although prepaid cards can be safer than carrying cash, there is always the concern of losing the card itself. Your provider will have a record of your card and spending so if you need a replacement, it can be sent to you as soon as possible.
How much do prepaid cards cost?
The fees associated with each card will differ. Depending on what you go for, there can be a charge for setting up the card and your account.
The bottomline is that you need to compare your options and find the card that most suits your needs (and budget).
What types of prepaid cards are there?
There's a good choice of prepaid cards out there to suit your needs. These are the main types of prepaid cards available:
- Overseas Prepaid Cards: have special deals and offers on swapping currencies whilst abroad or low charges when it comes to withdrawing cash overseas. A good way to spend on holiday.
- Business Prepaid Cards: allow business owners to stay on top of spending including managing payroll, ad hoc expenses and other important costs. Often, you are given a prepaid business account and can request more cards if you need employees to have their own.
- No Monthly Fee Prepaid Cards offer incentives to try and appeal to more customers, hopefully encouraging them to switch to their account. These often include cashback, vouchers or a high AER rate.
- No Set-Up Fee Prepaid Cards: have no upfront cost to set-up your card but can generally come with a monthly fee often in return for additional benefits (eg. cashback incentives).
There has also been an increase in the number of mobile-only bank accounts that are often thought of as a prepaid card. Some providers have now expanded and even offer interest or overdraft facilities. You can compare mobile-only bank accounts here.
What type of prepaid card should I get?
The right prepaid card for you will totally depend on how much you’re looking to spend, how much of a limit you want and what you want to use it for.
Have a think about whether you’ll use the card for everyday use, your business or overseas. This will narrow down your search to find the right one and you can compare prepaid cards on the comparison table above.
Will a prepaid card affect my credit score?
Prepaid cards were designed to help with budgeting. That being said, there are still providers who offer prepaid cards whose main incentive is to help with improving your credit score.
If you know your credit score isn’t looking its’ best and you’re on the market for a prepaid card, it might be a good idea to consider a credit builder prepaid card.
These cards usually work by charging you a monthly fee which if met on time will positively impact your credit file.
Prepaid cards can be a fantastic option if you’re trying to budget your spending. Just make sure you watch out for any fees and make sure they’re paid on time, in full. As always know where you stand, compare your options and Choose Wisely.