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Liane | Edited by Johanna
Updated November 2017
Prepaid cards let you load cash on them and spend anywhere credit or debit cards are accepted. They’re good to get if you’re usually rejected for credit, or to give to your teens to help teach them how to spend responsibly.
This guide helps you understand what prepaid cards are, decide whether you should get one, and give you the best buys for your circumstances.
In this guide
What are prepaid cards?
Prepaid cards do exactly what they say on the tin. You load cash onto a card, which can then be used in shops and restaurants just like a debit or credit card. However, that’s pretty much where the similarities end. First, there’s the crucial point:
If you haven’t loaded money on it, you can’t spend on it.
Think of them like pay-as-you-go mobile phones. You can’t spend beyond Ј0, forming a ‘safe’ barrier if you tend to overspend.
Another bonus is that you won’t get credit-checked when you apply, making the application process much simpler. They’re a good option for those who have just moved to the UK, or have a bad credit history.
Some people worry they may not be able to use a prepaid card in a lot of places. But most prepaid cards are Mastercard or Visa, meaning just like credit or debit cards, they’re accepted by most retailers in the UK and abroad.
Who are they for?
Those who dip into their overdraft – great for everyday spending
If you struggle with budgeting, then a prepaid card may work out cheaper instead of accidentally dipping into a pricey overdraft on a regular basis.
You’d spend as you normally would using a debit or credit card, but you don’t have to worry about missing out on perks – some cards also offer cashback and discounts on well-known retailers.
Most children’s bank accounts come with a debit card, but the worry is that they can spend all of the money in the account. With prepaid cards, parents can set maximum limits and keep an eye on their spending.
It might also be useful for school trips. If your child loses cash on a school trip, it can’t be recovered. But if he or she loses a prepaid card, you can block the card by reporting its loss straight away.
For a more extensive analysis of prepaid cards and bank accounts aimed at under-18s, see our new guide: Top cards for under-18s.
If you’ve got bad credit and have previously defaulted on loans, or have county court judgments (CCJs), your credit file won’t be in good shape. If your default is recent or if you haven’t settled your CCJ, forget about applying for normal credit cards. You’ll be rejected, it’ll leave a footprint on your credit file and you’ll end up in a rejection spiral.
Prepaid cards could help you adjust your spending habits, and some can even boost your credit rating.
One way of doing this is the Cashplus Creditbuilder card, which costs Ј5.95 to open. It charges a Ј5.95 monthly fee (so in total, 13 lots of Ј5.95 as you’re paying two in the first month), which technically counts as a Ј71.40/year loan. As long as you pay the fee every month for a year, this info will be passed on to credit reference agency Experian.
You can also get a prepaid card to use abroad. You’ll eliminate the worry about theft and overspending as you won’t need to carry wads of cash around. You’ve got the additional perk of preventing ID theft and fraudulent transactions, as prepaid cards work like an electronic traveller’s cheque.
You may have to pay an application fee (between Ј2 and Ј7) and other costs to operate your prepaid card, but choosing to use one specifically designed for spending abroad will generally have lower, or no transaction and withdrawal fees, compared to debit or credit cards.
For more info, go to our Cheap Travel Cards guide to see how much you’d pay to use a specialised prepaid card abroad.
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