What is a prepaid card?
A prepaid card is basically a plastic card that you can load money on to. It’s a bit like a pay-as-you-go debit card.
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 online or in the high street, just as you would with a debit 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.
A prepaid card could be ideal if you need help sticking to a budget, or if you’re struggling to get a credit card or bank account because of a poor or limited credit history.
Because you can only spend what’s loaded on a prepaid card, it could help you take control of your day-to-day spending and avoid getting into debt.
What are the different types of prepaid card?
Depending on your circumstances and needs, you could consider prepaid cards with features like:
Basic banking facilities
There are prepaid cards available that include a sort code and account number so you can set up direct debits or standing orders for recurring bills (not all prepaid cards offer this). It also means you can receive funds, such as your salary or benefits, into your prepaid account.
Budgeting
Some prepaid cards come with an app that includes a breakdown of your monthly spending to help you budget better. Some prepaid account apps also let you split your spending money into different ‘pots’, so you can clearly control how much you spend on each.
Travel and multi-currencies
There are prepaid cards that let you load up in euros or another currency of your choice. Fees for transactions and ATM withdrawals abroad, and currency conversion, may be lower than using a debit or credit card, but always check with the card provider.
Credit-building
If you have a poor credit history, a credit-building prepaid card could help build up your credit score.
Kids’ accounts
There are specific prepaid cards for children and teens – typically with a minimum age limit. They often include an app that gives parents an oversight of how their kids spend their pocket money, while also encouraging them to develop good money management habits.
Contactless payments
Many prepaid cards let you pay contactless on purchases up to £100, so you don’t always need to use a PIN.
How do prepaid cards work?
Compare prepaid cards
Consider what prepaid card features are most important and helpful to you. Look out for any fees or charges that may apply as they can vary significantly. Some prepaid cards include rewards, such as cashback on your spending or points to use towards future purchases. But make sure any benefits are worth the cost.
Apply online
You can’t borrow money with a prepaid card or go overdrawn, so there’s typically no credit check to pass when you apply. But, depending on the prepaid card you choose, you may have to prove your UK residency along with your identity.
Top up your card
When you take out a prepaid card, you can decide how much money you want to put on it. In some cases, there may be limits on how much you can top up and how often.
Many prepaid cards include an app you can use to load up your card with money and keep an eye on your transactions.
Once your balance is down to £0, you can’t use the card again until you top it up.
Use it like a debit card
When you take out 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. You may also be able to pay using contactless.
Your prepaid card should 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 could be a good idea if you prefer to carry a card instead of cash. 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. Many prepaid card accounts for kids and teens are also designed to 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. That means they could be a good option if you have a poor credit history or no credit history.
For holidays – you can load your card in the currency of the country you’re visiting.
For employee expenses – giving your employees prepaid cards to use when they travel for work could make it easier to budget.
How to get a prepaid card
In the UK, you can get a prepaid Visa or Mastercard from some high-street banks, credit unions, newsagents and at the Post Office.
You can also get a prepaid card online. In some cases, you’ll be issued a ‘virtual’ card that you can use to buy items online. You’ll then be sent an actual card in the post.
Please note that you can’t compare prepaid cards with Compare the Market.
How much does a prepaid card cost?
When choosing the best prepaid card for you, consider any additional charges that might apply.
Look out for:
Application fees – some prepaid cards may charge you an activation fee to open an account.
Monthly fees – you may be charged a monthly fee to use the card, which could be around £2 to £10.
Renewal fees – there could be a charge to get a renewal card once your old one has expired.
Transaction fees – you may be charged a small fee to make certain transactions. For example, paying by bank transfer.
Withdrawal fees – you may be charged for making cash withdrawals at an ATM. Or you may only be allowed a limited number of free withdrawals per month.
Loading fees – with some cards, you may be charged each time you transfer money over to top up the account.
Fees can vary significantly among prepaid cards, so read the small print carefully.
What are the advantages and disadvantages of prepaid cards?
Advantages of prepaid cards
They can help you keep to a budget and control 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.
Can be a good alternative to cash or credit cards abroad.
You might not need a credit check, so a prepaid card could be a good option if you have a bad credit history.
The application process for prepaid cards in the UK is usually quick and easy.
Disadvantages of prepaid cards
Unlike credit cards, prepaid cards don’t have Section 75 protection. But you may have some purchase protection under the chargeback scheme.
Not everywhere accepts prepaid cards. For example, some hotels or car hire companies prefer you to pay a deposit with a debit or credit card.
You may have to pay fees to keep the account open or to make certain transactions.
FAQs
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, you can transfer money onto your card from your current account.
Do I have to be 18 to get a prepaid card?
For some prepaid cards you need to be 18 years old or over. But there are also prepaid cards that teenagers or kids as young as six can have with parental permission.
Is the money on a prepaid card safe if the company goes bust?
Yes, your prepaid card balance should be safe if the card provider goes bust. Money held on a prepaid card is classed as ‘electronic money’ and under UK regulations it should be ringfenced in a separate bank account.
So provided the card provider is following the rules, the only risk is if the bank or building society where your money is held goes under. In that case, it might not be protected.
For that reason, it’s a good idea to check where the card provider will be banking your money. If it’s a bank you’ve never heard of, that could be a reason to think twice.
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.
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