Managing your money with a prepaid card

If you’re on a budget and worried about overspending on your plastic, take a look at prepaid cards.

A prepaid card is a backwards credit card – instead of borrowing the money and then paying off your debt plus interest, you pay money in to your card account and can only spend the amount you have put in.

You can spend your cash online, in shops or thousands of other places just like a credit card without the worry of going over your limit.

Many people worry that once they have put money on the card, they can’t spend because outlets don’t accept them, but this is far from true as any outlet on the Maestro network will take the card.

Outlets all over the world also accept prepaid cards.

• Who should have a prepaid card?

If you already have a credit or debit card and have a good credit history, then stick with them.

Prepaid cards are really for people who have problems budgeting their income:

• Repairing your credit history

If you have a poor credit history and are coming out of a bad financial patch or need help managing your money, then consider a prepaid card. You can apply for a card knowing the providers won’t check your credit record.

Prepaid cards do not represent any risk to a lender because you can only spend your own money without running up any debts, so past credit problems don’t matter.

• Teaching your children money management

Lots of prepaid card providers allow anyone over 13 to have a card. You can load up the card with pocket money or the money your child has earned. They can spend in the shops or online.

The card helps budgeting and let’s you keep a track of what they are buying.

• Spending online

A prepaid card opens up a new world of saving money online. Instead of paying cash in the high street, you can pick up savings on thousands of sites like auction giant eBay.

• Holiday cash

Prepaid cards in foreign currencies are generally only available in US dollars or Euros.

Putting your holiday cash on a prepaid card is better than carrying a big wad of cash – if you lose the cash that’s it, but if you lose your prepaid card, providers will give you another with all your money still loaded.

Topping up a prepaid card

Managing a prepaid card is no harder than having a top-up card for your mobile phone.

Simply apply for the card, transfer some cash on to it and spend like any other credit or debit card.

Topping up or transferring money to the card is easy:

• Most prepaid cards have websites where you can add funds.
• Some cards let you transfer money from a bank account. This is often free.
• The most common way of topping up a card is at the Post Office or corner shop. About 20,000 outlets have top-up machines

Adding up the card costs

Depending on the card, you will pay all or some of the charges listed here:

• Top Up Fees

The provider charges a fee every time the card is topped up – generally it’s a minimum of £1 or 3% of the amount you put on the card, whichever is the most amount.

• Usage Fees

Some cards charge a fee for each transaction – if you want to sign up for a prepaid card, check the fees on a comparison site online.

• Application & Replacement Fees.

Most cards charge about £10 to open an account - a few charge a monthly fee as well – and many charge an annual renewal fee of about a fiver.

• Inactivity charges.

Card providers make their money from you using the card, so if you open account and leave the card in a drawer, they may charge you a fee.

• Exchange rate.

Check out the exchange rates before spending abroad – often they are more expensive than normal credit card exchange rates.

Protecting your cash

Besides checking out the small print and the costs, also bear these points in mind if you are considering applying for a prepaid card:

• If you load up a card with a lot of cash and the provider crashes, you lose your money as no protection scheme is in place

• You don’t have the same consumer protection if you buy goods with your prepaid card as you would with your credit card

• The card generally has a maximum cash amount you can load up to about £5,000. Some also have a limit on how much you can spend on the card in a year.

Summary

• Prepaid card accounts are accessible to just about everyone regardless of their credit rating

• The card is a good budgeting tool for those who have problems managing their money or need to repair their credit rating

• Prepaid cards are good for children too young to hold a credit or debit card

• If you can get a normal credit or debit card from your bank, these are often a better option unless you are always overspending