A complete guide to prepaid cards – which is the best for you?

16 min Read Published: 16 Mar 2021

A complete guide to prepaid cardsWhat is a prepaid card?

A prepaid card is an alternative to carrying around cash. It works in a similar way - and looks identical - to a debit card, except for the fact it isn't connected to a bank account. Instead, you load money on to the card and then use it for your day-to-day spending, topping it up when you need to. The way it works means there is no risk of overspending on the card, becoming overdrawn or building up any kind of debt.

Using a prepaid card minimises your risk of being a victim of fraud as, unlike a credit or debit card, the amount you stand to lose is limited to the total amount loaded on the card. For this reason, some people prefer using a prepaid card for online purchases or when purchasing items when abroad. A prepaid card can also be preferable to cash as it is easier to handle and, if you lose it, there is more chance of being able to get the money back.

In this article we explain exactly how prepaid cards work and highlight the best cards for general use. If you want specific information about prepaid travel money cards, read our review. If you are looking for the best prepaid cards for children, we also have a comprehensive guide.

How does a prepaid card work?

You can buy a prepaid card from retailers such as newsagents, or you can buy them online. At the point of purchase you will need to decide how much to load on it. Some cards also allow you to set up a direct debit from your bank account to automatically load money on to your card on a monthly basis. Different methods of topping up your card may have different limits. For example, you may be limited to adding £250 if you are doing it at a shop, but you may be able to do a bank transfer for over £1,000.

Where can you top up a prepaid card?

When your balance gets low, you can top up a prepaid card in a number of ways:

  • Online or over the phone
  • At a Post Office or PayPoint store
  • By bank transfer

Once money has been loaded onto the card, you can use it just as you would a debit or credit card. In fact, if it has a Mastercard or Visa logo, it should be accepted in all places that accept cards from those issuers. As with a debit card, you will have a PIN, which you use when making a payment or withdrawing cash from an ATM. There is usually also the option to make contactless payments up to a total of £100 per transaction.

If you try to pay for an item when you have insufficient funds on the card, the transaction will be declined: there is no overdraft facility or the potential to overspend on the card.

How much does a prepaid card cost?

Most prepaid cards have a fee or charge associated with them, so it pays to shop around and work out in advance what it is likely to cost. While one option may initially seem more appealing because there isn't a charge to take it out, for example, it could cost more in the long run if there is a high transaction fee.

Not all cards have the same fees, but potential costs for a prepaid card can include:

  • A cost of £5 or £10 to buy the card (there are some free options available and other cards that waive the charge if you top the card up with a minimum initial amount)
  • A monthly fee for owning the card, which could be between £1 to £12.50
  • A fee of 2% to 3% to top up the card with more money
  • A transaction fee for a percentage of each purchase
  • A cash machine withdrawal fee, both in the UK and abroad
  • Replacement fee if the card is lost of stolen
  • Inactivity fee if you haven't used your card for a certain period of time
  • Cancellation fee and fees to transfer any remaining money off of the card

Which are the best prepaid cards?

Prepaid card Set-up fee Monthly fee UK transaction fee UK ATM withdrawal fee Charge to load money
CardOne Money Free £12.50 Free £1.50 Free
Suits Me Premium £9.97 £4.97 Free £1.25 Cash top-up £0.99 plus 2.6%
Monese Simple £4.95 Free Free Up to £200 per month free (2% over £200) Up to £200 per month free (2% over £200)

CardOne Money  CardOneMoney

  • Best for... those looking for good cashback deals
  • Transaction fee in the UK: Free
  • Transaction fee outside UK: 2.75%
  • ATM withdrawals in the UK: £1.50
  • ATM withdrawals outside UK: £3 plus 2.75%
  • Extra information: £10 redemption fee to take money off the card if you close your account, 3.5% cashback with 35 high-street retailers, including Marks & Spencer, Argos and Boots

Suits Me Premium card Suits Me Premium 

  • Best for... those looking for low fees for use in the UK
  • Transaction fee in the UK: Free
  • Transaction fee outside UK: £1.97 plus 2.35% in Europe, £1.97 plus 2.57% in other international locations
  • ATM withdrawals in the UK: £1.25
  • ATM withdrawals outside UK: £2.50 plus 2.35% in Europe, £1.97 plus 2.57% in other international locations
  • Extra information: £5 redemption fee to take money off the card if you close your account, free mobile banking app, cashback from 3% to 15% with 22 high-street retailers

Monese card Monese Simple

  • Best for... those looking for a low-cost option and who are likely to stay within the spending limits
  • Transaction fee in the UK: Free
  • Transaction fee outside UK: Free up to £2,000 per month (2% over £2000)
  • ATM withdrawals in the UK: Free up to £200 per month (2% over £200)
  • ATM withdrawals outside UK: Free up to £200 (2% over £200)
  • Extra information: No redemption fee

Are prepaid cards safe?

Prepaid cards are considered to be a safe option for many users because they limit the risk of overspending and are also easier to manage than having to carry around the equivalent amount in cash. In addition, as for most cards they are not directly linked to your bank account, it minimises your exposure to fraud if your card details are stolen. Moreover, using a prepaid card doesn't appear on your credit file so there isn't the same risk of damage as there is if you mismanage a credit card.

On the other hand, there are two downsides to opting for a prepaid card in terms of safety:

  • You will not qualify for protection under section 75 of the Consumer Credit Act, which you would be if you made a purchase between £100 to £30,000 on a credit card. For more information on what section 75 offers consumers, read our article "Section 75 of the Consumer Credit Act explained - your rights and how to claim".
  • Prepaid credit cards are not protected by the Financial Services Compensation Scheme (FSCS)

Should you use a prepaid card?

Prepaid cards for travel

A prepaid currency card - also known as a travel money card - provides a convenient way to take money abroad if you’d rather not take cash or a debit or credit card. You can load the card with a set amount of money before you travel and use it in shops and restaurants at your destination. You can also use the card to withdraw cash from a cash machine.  

Prepaid travel cards are available in all of the major currencies and it is also possible to get multi-currency cards. The cards carry the MasterCard or Visa logo and are accepted by all retailers who accept payments from those payment networks. 

Some general-use cards are also good options for use abroad. However, for details specifically on prepaid travel cards - and credit cards that are well-suited to travellers - read our article "Compare the best travel credit cards".

Prepaid cards if you have poor credit history

A prepaid card can be a good option if you aren't eligible for a standard credit card but don't want the inconvenience of carrying around cash. As they are not a credit product, there is no need for a provider to access your credit file before taking out a prepaid card. Pre paid cards have the added benefit of limiting your spending to the amount you have loaded on to the card, which can be useful if you have a habit of overspending and running up debts.

While a standard prepaid card won't help you to improve your credit worthiness, there is the option with some cards to add on a credit-builder component. This service works by the card provider in effect lending you the equivalent of a year's worth of monthly fees and reporting to the main credit reference agencies when you make the repayment each month. If you pay the amount owed in full and on time each month, your credit rating will improve.

For more details on options for people with poor credit, read our article "Credit-builder cards - which is the best credit card if I have poor credit".

Prepaid cards for under-18s

There are a growing number of accounts designed for children that provide prepaid cards. The idea is that, with most adults using debit and credit cards, it's good to get children used to managing their money using a card as well as cash. It can also be a practical option becuase as a parent or guardian, you can have control over, for example, limiting spending on the card or putting more money into the account linked to household chores. If the child loses the card, there is also more chance they will be able to safeguard the money in the account rather than if they lose cash.

For our up-to-date recommendations for prepaid cards for children, read our article "The best children's bank accounts".

What are the benefits of a prepaid card?

  • No credit checks: They are a good option for people who are not eligible for a credit card, such as those with seriously impaired credit, people who have just moved to the UK or young people without a credit history.
  • Managing spending: As you can't overspend on a prepaid card, they are a good way of helping you budget and stopping you running up debt. They can also be a useful tool to give young people experience of using a card and learning how to manage their finances responsibly, while the parent or guardian retains overall control.
  • Fraud protection: If your card is stolen or compromised online, you only stand to lose the amount that is loaded on to your card. There is also some hope you could recoup money that is lost or stolen, which isn't generally the case with cash.
  • Travel: Prepaid cards can help manage your spending abroad, without the risk of incurring unexpected foreign exchange charges. It is more convenient than changing up money into the local currency and also provides you with some protection if your card is lost of stolen.

What are the disadvantages of a prepaid card?

  • Lack of consumer protection: Unlike with a credit card, you won't have section 75 protection and a prepaid card also isn't covered by the Financial Services Compensation Scheme (FSCS).
  • Charges: Depending on the fee structure for the specific card you take out, it can work out relatively expensive

Summary - is a prepaid card right for you?

As you will likely have to pay fees and charges for a prepaid card, it arguably makes more sense to use a debit card for day-to-day spending. However, prepaid cards can be a great option in a number of specific situations, including for travel or as a way to budget, particularly if you have a poor credit history. As with all financial products, it pays to shop around and to select the best option for your circumstances. You should also make sure you read through the small print before choosing a prepaid card to make sure there aren't any hidden charges or unexpected limits on the way you can use it.

 

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