Prepaid Cards

Prepaid Cards as an Alternative to Credit Cards

Prepaid cards are a great alternative to credit cards, particularly for young people and first-time cardholders and those on low incomes. They allow all the convenience of credit cards, and can be used at most of the same places, without the stress of worrying about getting into debt and damaging your credit score. Prepaid cards can be used to make purchases and payments anywhere that accepts Visa and MasterCard – everything from shops and restaurants to online shops.

With a prepaid card you add the cash in advance and spend until the money has gone, so rather than requesting credit and getting into debt you are only spending the money that has been prepaid. For this reason they are an ideal way for people who haven’t used credit cards before to use them for spending and to use them responsibly. For those on low incomes, with poor credit ratings or without a bank account, a prepaid card is a safe and accessible alternative to a credit or debit card.

Gift Cards

As well as being a way of learning how to use cards and a safe way of spending, prepaid cards make ideal gifts. A gift card is the same thing as a prepaid card – you purchase the card with a specific amount of money applied to it, give it to a friend or family member who can then go on to use it as they would a normal credit card. A prepaid card is a way of giving someone a financial gift that they can spend where and when they choose at their own convenience. Although they function in the same way as most other prepaid cards, gift cards are available with a variety of designs aimed at specific special occasions.

Prepaid Cards Q&A

Q: So, how do prepaid cards work? A: As the name suggests, prepaid cards work simply by paying a specified amount to the card when you purchase it. The card can then be used at most places where you can use regular credit cards, spending until the prepaid amount is used up.

There are a few different types of prepaid card available, but they are generally either disposable or rechargeable. Disposable cards stop working once the original prepaid money has been spent. Rechargeable cards can be reloaded with cash so the cardholder can continue to spend on the card, but again only up to the prepaid amount. Rechargeable prepaid cards can be topped-up at a variety of places including shops and post offices, filling stations and travel agents, and over the phone and online.

The banks that provide prepaid cards obviously need a way to earn money from their cards, and they do this through various fees and charges. Different cards feature different fee structures such as a one-off charge when you purchase the card, charges on individual transactions or fees applied at regular intervals. It is important to look at these fees and charges to make sure the prepaid card offers genuine value for money. For disposable and gift cards this isn’t so much of a concern, but if you are looking for a rechargeable card for ongoing topping-up and spending you should ensure the card’s costs are not excessive.

Q: What are the advantages of prepaid cards? A: Prepaid cards are a unique type of card with their own advantages when compared with regular credit cards. They are accessible to people under the age of 18 and others who do not qualify for credit cards; they are safer than carrying cash; they are accepted around the world at places that accept Visa and MasterCard; they remove the worry of credit card bills and debts; and they provide a way for people with limited bank access to receive paycheques and government benefits onto the card free of charge.

Accessible with no credit check: You usually need to prove your identity when applying for a prepaid card, but there is no credit check because you are not requesting credit from the card provider. This makes prepaid cards ideal for those who have a poor credit rating, or people who have never used a credit card and want to develop their credit rating.

Controlled spending: When you spend on a prepaid card you can only use up the money that has been paid on to the card in advance, so your spending is controlled to a very specific amount. This is completely different to a credit card, with which you are borrowing credit from the bank, or a debit card, which allows you to spend whatever money may be in your bank account and then eat into your overdraft. This makes prepaid cards ideal for those who struggle to use a credit card responsibly or want to learn how to use a card. If you are using the card to give funds to another person, a parent providing money to a child for example, you can control the allowance added to the card and monitor how and where the card is being used.

For travelling abroad: If you are travelling abroad, or you want to supply funds to someone else who is, a prepaid card can provide a perfect alternative to carrying cash and travellers’ cheques. A specific holiday allowance can be applied to the card to limit how much is spent: it’s a safe an secure way of spending abroad, and if extra funds are required you should be able to top-up the card via the internet.

Top-up as you go: Rechargeable prepaid cards mean that you can top-up specific amounts as you need and use the money without getting into debt. This can be useful if you want to limit your spending, on shopping trips or holidays for example, or if you don’t have access to a credit card but want to make a purchase online or over the phone. You simply top-up the required amount and make the purchase as you would with a regular credit card.

Q: What are the disadvantages of prepaid cards? A: While prepaid cards are simple and convenient to acquire and use, they do have some disadvantages when compared to credit and debit cards. The main drawback is that the fees and charges applied to prepaid cards are potentially quite expensive. These costs vary between different cards but may include set-up fees, recharging fees, transaction charges, customer service and statement fees, and charges for redeeming the funds on your card. You should check out all the associated fees and charges to make sure a prepaid card offers real value for money before applying.

The other disadvantage of prepaid cards is that they are very basic when compared to certain other types of credit and debit card. Prepaid cards do not have extra features such as rewards programs, balance transfers, insurance policies and other benefits you can enjoy with credit cards. For young cardholders, those on low incomes or with bad credit ratings, a no-frills prepaid card is ideal; but if you qualify and want to enjoy the extra benefits, a credit card may be a better choice.

Q: What factors should I consider when comparing? A: When you are comparing and selecting a prepaid credit card it is crucial to know how you, or the person you are purchasing it for, intend to use the card, and which features are the most important. Different fees may be applied to different transactions and some prepaid cards are designed for specific purposes.

How do you plan to spend on the card? Will it be used mainly for shopping in stores or for internet purchases? Certain cards are designed specifically for shopping online.

Is it a gift card? While gift cards work in the same way as most other prepaid cards, banks do offer a variety of card designs aimed at all sorts of special occasion.

Is the card to be used abroad? If the card is for use while travelling, check what fees apply to overseas spending and what options there are for customer service and internet reloading if extra funds are required.

Do you need an extra card? Banks often provide a second back-up card free of charge.

What are the recharging options? If you are selecting a rechargeable prepaid card it is very important to know how and where you can top-up money to the card. Have a look at which outlets offer reloading and whether you can top-up online and overseas to ensure it fits in with how the card will be used.

What is the minimum and maximum load? Prepaid cards usually have a minimum and maximum load value – ensure it allows the correct allowance for the type of spending you require.

What fees are involved? These are among the most important considerations – what set-up fees and other charges are applied? Check that the fees and charges don’t outweigh the convenience and accessibility of the prepaid card.