Why the interest in prepaid debit cards?

Prepaid debit cards are getting more popular all the time in the UK. They have been described as a ‘credit card without debt’, but what can we expect of the new prepaid debit card coming to a wallet near you?

A prepaid card is not a new idea. There have been prepaid phone cards, prepaid sim cards, and prepaid gift cards for a number years, and the concept of the prepaid debit card is just the same: you load up a card with money which you can then use at retail outlets or with merchants online. You can also use it to top up your mobile, pay your bills or withdraw cash at an ATM. A prepaid debit card comes from Visa or MasterCard, so it can be used pretty much anywhere in the world.

You can load money onto the card with cash, by bank transfer or via a credit card. In general these cards are used in similar ways to credit cards, and are referred to a ‘prepaid credit cards’. The fundamental difference, however, is that they can only be used up to the amount of cash you load onto the card. It means that you do not run any risk of getting into debt by using the card. To get one, you do not have to pass a credit check, and there is no interest to pay.

Its ease of use puts a cheque to shame. You can use the card to pay for groceries, petrol, shopping on the internet, topping up your mobile, reserving flights and hotels, paying bills, transferring money, withdrawing cash. It’s very flexible. As there are no credit checks on applicants, if you want one you can get one. It has the benefit of security safety: if you use it to buy anything online or over the phone, and your card is used fraudulently, you can get your money back. Also, the card can be safer than carrying cash, which makes it good for children. If you lose your card, you can contact the provider who will send you a new one. Again, for children, it is a good way to control their spending – and those of employees. Some companies, however, do restrict cards to be used by those aged 18 and over. You do get a full statement of spending so you can see exactly what has been spent, where and on what. As you can only spend the money that’s on the card, there is no risk of ‘over-spending’ and ending up in debt. The card can also be used abroad – depending on the provider – to get cash from ATMs worldwide. Some providers even offer 0% fees on foreign exchange.

There is a debate about whether prepaid debit cards are educational for children. So long as parents don’t load up the cards with cash endlessly, then they can a good budgeting teacher for kids, leading to better money management in later life. An always fully-loaded card will have the opposite effect, however, leading children to think that money is drawn from a bottomless pit. The beneficial side is that parents can load money onto the card remotely so they can always help their children if need be (no more ‘sending cash’!) and of course all spending can be monitored via online statements.

The biggest drawback of the cards are the costs and fees – inevitably. You need to watch out for any card application fee, any monthly service charge. If there is one, exactly what do you get for it? How is the customer helpline charged and at what rates? Is there a charge for topping the card up, and does it vary with the method? If you load up the card via a bank, does the bank charge a fee? What fees are associated with withdrawing cash at an ATM? Other possible fees may come with purchases over the internet (and it may be higher for overseas transactions); for courier delivery of the card; for terminating your account. Are there charges for card replacements or card renewals? There are certainly a number of possible charges and should make yourself aware of all of them.

The prepaid debit card market is still young and expanding, but providers already in the game are Cashplus, Cash2Go, Amex Travellers Cheque Crad, Speedcard, I-Money and I-Travel. With more cards coming onto the market, competition should hopefully drive down fees.

When you’ve applied for your card you will get (some under separate cover): the prepaid card (which will need to be activated); card activation code; PIN; paying-in book. You will need to sign your card. Methods of loading money onto the card may differ slightly between providers.

Deciding which card is right for you will depend on the fees, the methods of loading the card, the type of assistance offered and the level of protection offered. Shopping around will help decide the best deal for you.