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Why a prepaid card?

Prepaid payment cards, or stored value cards, are increasingly popular in the UK. There are a number of different types of prepaid cards in the market, for example:

  • Gift cards that can be used only in certain stores
  • Non-reloadable cards that carry an international card scheme logo and can therefore be used at millions of outlets around the world
  • Reloadable cards that carry an international card scheme logo and can therefore be used at millions of outlets around the world.

Prepaid cards can be comparable to credit or debit cards as many of these cards are issued under the international card schemes (Maestro, MasterCard, or Visa). Some prepaid cards can be purchased, loaded with a specified value, and used until the funds on the card have been spent, while others are re-loadable and can be ‘topped-up’ in much the same way as you would a ‘pay-as-you-go’ mobile phone. The ways that you can reload your prepaid cards differ between cards.

The most common ways are:

  • In branches
  • Online
  • Over the phone
  • At cash machines

It is even possible to have your wages paid directly to some of these cards.

Prepaid card users are most likely to be those who have no other access to card payments, teenagers and young adults (e.g. for budgeting at university) or travellers. One of the main advantages is that there is no possibility of exceeding spending limits.

Advantages

The main benefits that prepaid cards provide are:

  • A convenient way to pay for goods and services, particularly online, by phone or by mail order, both in the UK and abroad.
  • Prepaid cards can be used in cash machines around the world, if issued under one of the international card schemes.
  • A convenient way to manage expenses and control a personal budget - or help to manage children’s spending.
  • There is no risk of running into debt, as prepaid cards have no credit or overdraft facility.
  • Like credit cards, some prepaid card issuers may offer cashback or other incentives.
  • Prepaid cards in the UK are often available in different currencies, most typically pounds sterling, euros or US dollars, and can be safer and more efficient than carrying cash or travellers’ cheques.
  • Instant access to money, rather than having to wait for a cheque to clear (if being used to receive wages). Can act as a quick and efficient means of international money transfer, for example, by delivering the card to a relative in another country.
  • They make card payments available for those who are unable to access credit or debit cards. No credit checks are required. However, most prepaid card providers will carry out an identity check to confirm you are who you say you are.
  • It is usually possible to have more than one card on an account, allowing secondary cardholders access to your funds.
  • Prepaid card accounts can usually be managed either over the phone or online. Like any payment card you get a full record of transactions on the card so you can see what has been purchased, from whom and when.
  • If your card were compromised, a fraudster would not be able to access funds in your bank account or credit facility and some prepaid card issuers offer services whereby you can block use of your card remotely – online or text messaging.

Disadvantages

The main disadvantages of a prepaid card are:

  • The costs and fees associated with using them. For more information on the types of fees, please see the section Fees and charges for prepaid cards.
  • You will not earn interest on any money that you pre-load on the card.
  • Some cards may offer less protection than others. Cardholders should refer to the terms and conditions to confirm the level of protection and any liability.
  • Prepaid cardholders should be aware of any particular limitations on the use of their card. For example, some prepaid cards cannot be used for particular types of transaction such as online gambling, or cannot be used in certain places such as on planes or trains. Again, any restrictions will be detailed in the terms and conditions and should be contained within the summary box.
  • Prepaid cards can often also have various restrictions on the maximum or minimum value that may be loaded on to a card, either at the outset or when topping-up, the maximum total balance that can be held on a card, the maximum amount that may be withdrawn daily, or the minimum available balance required to make transactions in certain retail sectors such as self-service petrol stations. This information will be contained in the terms and conditions.
  • In some circumstances, a prepaid card may not be the most appropriate. For example, in an emergency situation where you may need access to funds greater than available on your card. In these situations a credit card may provide a convenient form of short-term borrowing.
  • There is no fraud protection from your card issuer, so any money used in a fraudulent transaction will not be reimbursed.
  • Unlike credit cards, you do not get the same level of protection when using prepaid cards (see Section 75 of the Consumer Credit Act).
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