5 reasons to use prepaid cards

Prepaid cards, which can be loaded with cash and used to withdraw cash or make purchases, are becoming increasingly popular. Common uses for the cards, which work a bit like pay-as-you-go mobile phones, include holiday purchases, children’s spending money and household budgeting. Here are five reasons you might want one...

Protection against fraud

One potential advantage of prepaid cards is that they're not linked to your bank account. You can therefore use them to buy goods online, safe in the knowledge that a fraudster who managed to get hold of your prepaid card details could not run up credit at your expense.

It is, however, worth noting that Section 75 of the Consumer Credit Act does not offer any protection for prepaid card losses. So, should goods purchased with a prepaid card fail to arrive or prove unsatisfactory, you will only be able to chase the retailer – not your card provider – for a refund.

To ensure you are properly protected, choosing a Visa-backed prepaid card that offers cover under the Chargeback system could therefore be a sensible option.

Jessica Bown, financial journalist at moneysupermarket.com offers tips and advice on all things money-related to help iVillagers make the most of their hard-earned cash.
Pay less for overseas purchases

Prepaid cards generally come in three currencies: sterling, US dollars and euros. When sterling is strong, you can therefore take advantage by loading your prepaid card in preparation for holidays later in the year.

As long as the local currency matches that on the card, you will also escape the foreign exchange fees charged by most credit and debit cards on purchases made abroad.

There will usually be a cross-border fee of about 2.75%, though, while even cash withdrawals in the UK often attract fees.

The FairFX Euro Currency Card Special, which offers competitive exchange rates, will also pay £5 cashback to MoneySupermarket customers when you load £500 or more onto the card. You will also benefit from free card delivery of the card when you load up a minimum initial £50 (or €60). ATM fees are set at €1.50.
Stay secure away from home

Being targeted by thieves or fraudsters can ruin the best of holidays. But, as with traveller's cheques, money on a prepaid card can be replaced if the card is lost or stolen. In fact, the most you can lose is the amount you had pre-loaded onto the card.

And, as you can load the prepaid card over the phone or online, you can keep this amount low by adding to it when you need to rather than pre-loading your whole holiday budget.

The only downside is that you may be charged for calling the customer helpline and for having your card replaced by courier (up to £35).
Keep control of your kids’ spending

Older children often get invited on school trips that may even see them spending time abroad away from their parents. And on these trips they are going to need a certain amount of spending money. But rather than handing over a wad of cash, parents might prefer to send their children off with a prepaid card that they can either pre-load with money for the duration of the trip, or load on a daily basis over the phone. The second option has the added advantage of allowing parents to ensure their offspring do not splurge their entire budget in the first day or so.

But beware: As well as imposing charges such as application fees of up to about £10 and monthly fee of around £5, some prepaid card providers also charge if you don’t use the prepaid card for, say, over a year.

It is therefore a good idea to cancel the account if you or your child no longer needs it.
Stay in the black

Prepaid cards can be used in the UK as an alternative to debit and credit cards. And the great news for those trying to rein in their spending is that you can’t slip into the red by mistake. A prepaid card could also be used to store money for the weekly shopping trip or for monthly bills, making it a valuable budgeting aid.

Jessica Bown, financial journalist at moneysupermarket.com offers tips and advice on all things money-related to help iVillagers make the most of their hard-earned cash.
Next Up: 5 of the best cashback credit cards
It’s a common perception that only a minority of people pay their credit card bill off in full each month.