What is a prepaid card?

Prepaid cards can be a safer and easier alternative to carrying cash. But how exactly do prepaid cards work and how do you apply for one? Let’s take a look.

Written by

Alex Hasty

Insurance and finance expert

Posted

25 FEBRUARY 2021

7 min read

What is a prepaid card?

A prepaid card is basically a plastic card that you can load money on to. It works pretty much in the same way as a pay-as-you go mobile phone.

You buy a prepaid card, add cash to it, then top it up when the funds run out. You can use a prepaid card to buy things online or in the high street, just as you would with a debit or credit card. Most prepaid cards are Mastercard or Visa, so you can use them anywhere that accepts these.

Sometimes they’re called ‘cash cards’, which is exactly what they are – instead of carrying cash around, you load your money on to the card.

Prepaid cards are ideal for day-to-day shopping and budgeting. They can help you take control of your spending and avoid getting into debt because once you’ve spent the money on them, you can’t spend any more unless you top them up.

How do prepaid cards work?

When you buy a prepaid card, you can decide how much money you want to put on it. As they’re designed for everyday spending there’s usually an upper limit on the amount you can load on to it. This can vary, depending on where you buy the prepaid card from.

Once you’ve used up the money, and your balance is down to £0, you can’t use the card again until you top it up.

When you buy a prepaid card, you’ll be provided with a PIN so you can withdraw cash or pay for things when you’re out and about. It will also have an expiry date, card number and a card verification value (CVV) code so you can use it to buy items online.

Who are prepaid cards good for?

Prepaid cards are good if you prefer to carry a card instead of cash in your pocket. They’re also good if you want to stick to a budget and not go overdrawn on your bank account.

Prepaid cards could also work well for:

Teenagers and students – by putting only a small amount onto the card, parents can keep an eye on their child’s spending and help them learn about financial responsibility and budgeting.
If you don’t have a bank account – some prepaid cards can be topped up at the Post Office, at a PayPoint service or through an online app, so potentially you can use them without having an actual bank account.
If you’re in debt – you can’t borrow on the card, so it can be a great way of managing your spending.
If you have a bad credit rating – you might not need a credit check to get a prepaid card, so they could be a good option if you have a poor credit history, or no credit history.
Going on holiday – you can load your card in the currency of the country you’re visiting and use it instead of carrying cash or spending on a credit card abroad.

Do I have to be 18 to get a prepaid card?

It depends. For some cards you need to be 18 years old or over. But there are also prepaid cards that teenagers or kids as young as eight can have with parental permission.

For all cards you must have a verified UK address and be a UK resident.

Where can I buy a prepaid card in the UK?

You can buy a prepaid card from some high street banks, credit unions, newsagents and at the Post Office.

You can also buy them online. In some cases, you’ll be issued a ‘virtual’ card which you can use to buy things online. You’ll then be sent an actual card in the post later on.

Please note: Compare the Market doesn’t offer a comparison service for prepaid cards.

How do I top-up a prepaid card?

Mastercard prepaid and Visa prepaid cards are quick and easy to top-up:

Online – using your account on the prepaid card provider’s app or website
PayPoint – shops and banks providing a PayPoint service let you pay in cash to top-up your card
Bank transfer – if you have a prepaid card with a sort code and account number, simply transfer money onto your card from your current account.

How much does a prepaid card cost?

When choosing the best prepaid UK card for you, you’ll need to consider any additional charges.

Look out for:

Application fees – some prepaids will charge you a fee to open an account, while others will waive this if you load a certain amount on to it
Monthly fees – some will charge a monthly fee which could be around £2 to £10, although there are many without one

Renewal fees – some will charge you to get another card once the old one has expired, while others will send you a new card at no extra charge
Transaction/withdrawal fees – some will charge you for every transaction and for withdrawing money from a cash machine. This is usually a percentage of the transaction or a fixed fee, typically around £2. But there are some cards which offer free cash withdrawals each month up to a limit, then charge a fee if you’ve used the card to withdraw cash too many times that month

Fees can vary a lot between cards, so it’s important to read the small print carefully. That way you’ll have a better chance of finding the cheapest card that works well for you.

What are the different types of prepaid card?

You might also want to consider getting a specific type of prepaid card to suit your needs. These can include prepaid cards with features like:

Basic banking facilities – some cards offer a sort code and account number so you can set up direct debits for recurring bills.
Budgeting – some cards come with an app which includes a breakdown of your monthly spending to help you budget better.
Multi-currencies – load up the card in Euros or the currency of your choice, then use it abroad and save on currency conversion fees.
Credit-building – if you’ve got a poor credit history, this type of prepaid card could help build up your credit score.
Kids’ accounts – specific cards for children and teens with parental controls and an app to help kids develop good money management habits.
Contactless – many prepaid cards come with this feature which lets you pay with contactless up to £45, so you don’t always need to put a PIN into card machines.

Prepaid cards - pros

They can be a great way of keeping to a budget and controlling your spending.
You can’t borrow on a prepaid card so there’s no risk of going overdrawn.
Safer than carrying cash – your provider can block the card and replace it if it’s lost or stolen.
There’s no credit facility so if you’re unlucky enough to be scammed by fraudsters, the damage in terms of money lost is only limited to the amount left on the card.
Can be a good alternative to cash or credit cards abroad.
You might not need a credit check, so it could be a good option if you have a bad credit history.
The application process for a UK prepaid card is usually quick and easy.

Prepaid cards - cons

Unlike credit cards, prepaid cards don’t have Section 75 protection. With credit cards, Section 75 could give you free protection on credit card purchases over £1,000 if there’s a problem. (But Section 75 isn’t automatic anyway, so if you have a credit card, there’s no guarantee you’d get a refund.)
Not everywhere accepts prepaid cards, for example, some hotels or car hire companies prefer you to pay the deposit with a credit card.

You need to be careful about checking for any hidden fees – make sure you know exactly what fees there are before you get a prepaid card. Also, you could end up owing fees if you leave them unpaid.

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