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For better control over your money, a prepaid card can be just the thing to keep your expenses in check.

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Last updated October 2020

What is a prepaid card?

A prepaid card is a card that you can add money to and spend like a regular debit or credit card. It works in the same way as a pay-as-you-go phone would, except you use it to make purchases.

Prepaid cards are sometimes referred to as prepaid credit cards, prepaid debit or cash cards. They all mean the same thing and work in the same way. While it’s commonly called a credit card, you don’t actually take out credit like you would with a regular credit card.

How do prepaid credit cards work?

The idea behind a prepaid card is that you load it up with a certain amount of cash, and you only spend that amount. For example, at the start of the month, you can add your food shopping budget to a prepaid card and use it until it runs out.

This can help you reduce overspending or impulse purchases. Once your money has run out, you can top it up, but there’s typically a limit on how much you can put on a card.

Most prepaid cards are either MasterCard or Visa and work like regular debit or credit cards. You will be able to use them in any shops, restaurants or online shopping.

Remember: A prepaid card can be a great way to help manage your spending habits as they don’t allow you to overspend. This can be a good option for someone with a bad credit rating or for a younger person who has not got a credit history.

Advantages of a prepaid card

The main reason why people get a prepaid card is to help with budgeting. Knowing you have a certain amount on your card means you’re much less likely to overspend.

Here are some other advantages to using a prepaid card:

  • Teach young people about budgeting - One great way to use a prepaid card is to teach young people about financial responsibility. For example, if you have a child, a prepaid card will help them learn to budget for everyday expenses.
  • Security from scammers or thieves - With prepaid cards having a limit on available cash, if a scammer or thief manages to get hold of your card, this limits the damage they can cause. You can only lose up to the amount on your card.
  • Foreign currency - Some prepaid cards are designed for travel use and allow you to add foreign currency while you are abroad. This can help you stick to a budget for your holiday spend.
  • No credit check - As there’s no access to credit, there’s no credit check required to open a prepaid card. If you have poor or no credit history, you should be able to get a prepaid card without issue.

Disadvantages of a prepaid card

A prepaid card can be a very useful way to control your spending but are there any downsides to this method?

The first one to be aware of is that some prepaid cards will have monthly fees. You may have to pay a fee to add funds to your card, withdraw cash or even if you haven’t used your card for a while. If you haven’t used your card for months, you could be charged a small fee for inactivity.

Some other disadvantages to prepaid cards include:

  • Fees can add up - A prepaid card may not be ideal for those on a tight budget who are trying to save money and avoid overspending.
  • They’re not ideal in certain scenarios - If you check into a hotel or hire a car, some places will put a hold on your card until you settle the bill. This means that prepaid cards with a limited amount of money on them aren’t ideal in these scenarios.
  • No section 75 protection - With credit cards, you will get free protection on purchases over £1,000. However, you don’t get this with a prepaid card. However, the good news is that you can still use Visa and MasterCard’s chargeback scheme, which gives you your money back in the case of receiving faulty goods or if a company goes out of business.

Prepaid credit card FAQs

We have listed out some frequently asked prepaid card questions.

You can top up a prepaid card in a few different ways. You can do it through online banking via bank transfer, you can pay in cash at Post Offices or banks or by receiving bank transfers.

This can vary, but typically you will need to pay £1 if you pay in cash at a Post Office or 3% if you add funds at a PayPoint shop. You won’t usually have to pay anything if you send money by bank transfer. If you wish to withdraw cash from your prepaid card, you may have to pay a fee as well.

Using a prepaid card is often safer than using cash or a regular debit card. That’s because if your card is lost or stolen, you can cancel your card, which makes it safer than cash. If it’s stolen, a thief can only access a limited amount of money rather than your entire bank account funds.

Yes. Some prepaid cards allow you to add foreign currency to your card, which can help you manage holiday spending while abroad. It’s best to check this first before you open a new prepaid card as not all of them will allow you to do so.

With providers offering a range of prepaid cards with varying fees and charges, it’s best to shop around for the best deal as no two cards are the same. Why not use our comparison table to find the cheapest prepaid credit card for you.

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