Prepaid Cards

Prepaid cards or prepay cards are not credit cards. You dont run up debt with a prepaid card youre spending money you have already put on the card account but you can shop online abroad at a distance using your prepay card just like a credit or debit card.

What is a prepaid card? 

In these post-credit crunch days carrying a load of debt on a credit card makes you look foolish rather than flash. Living within ones means may well require the discipline that comes with a prepaid card. 

In fact many of us may have already used a type of prepaid card at one time or another whether its for a mobile phone top-up, to pay for electricity or even a prepaid gift card that you can present to a selected retailer. 

The general prepaid card works in the same way in that you load money on to the card in advance from whats available in your current account and go out and spend it later. What makes this process different from a credit card is that you spend what you already have rather than what you are borrowing. 

Prepaid cards also offer users the ability to manage their spending and finances and carry out distance shopping where they have difficulty getting a credit card for whatever reason. 

What are the pros and cons of prepaid cards? 

Prepaid cards have the same uses as their flexible credit cousins - for example those operated under either the Visa or MasterCard umbrella may be used anywhere in the world as well as to purchase goods online. 

However depending on the card you are likely not to have the extra protection offered by the Consumer Credit Act which makes traders jointly and severely liable if there is a problem with goods and services - nor will you have insurance if goods you have bought on the card are lost stolen or damaged. 

Although both Visa and MasterCard offer a dispute procedure for debit cards and therefore prepaid cards the concept can be new to staff and is a less well-trodden path to venture down. In addition if you are travelling overseas on holiday or business - particularly to the USA - you may find that pre-booking hotels or hiring a car may not be possible with a prepaid card and you will still need a credit card. 

The upsides though are considerable. Not only is there no risk of running into debt you are not required to undergo credit checks because you are not asking for credit nor will you pay interest on any outstanding balance because you will have run up no debt. Consequently a better description for prepaid cards may be a prepaid debit card a prepaid Visa card or a prepaid MasterCard.

How do I load money on to the card?

This varies according to the card and the source of its issue but normally you may transfer funds from a bank account either at a bank branch or online or load cash on to the card at Post Offices and anywhere you see a PayPoint sign. 

Some cards have a special e-account working alongside it. There will always be one free channel with which to top up your card but others may attract fees. Your prepaid card provider will give you details.

What charges do prepaid cards make?

Prepaid cards are not issued or operated by providers for free. In fact one of their biggest criticisms is the potential raft of charges attached which depending on your circumstances may not be worth paying at all. While most prepaid cards will provide the opportunity to load money - up to a typical limit of £5000 - for free there will be a charge to use the card for anything thereafter. You may need to factor the following into your sums 

• Card application fee - This is usually charged at a one-off rate of £10 for postage and issue of the CHIP and PIN.
• Cash-loading - Loading cash on your card can usually be carried out for free but some cards may charge depending how you choose to top up. For example it may cost to transfer funds from a credit card or in cash at the Post Office PayPoint retailers may also charge.
• Cash withdrawals - Using a cash machine to withdraw money will cost a flat fee of between 50p and £2.50 per transaction or a percentage of the amount taken out - typically 1.5% - depending on the card issuer. Making withdrawals abroad will cost you more still - the CashPlus card for example will levy a very hefty £7.50 fee each time you visit the ATM - which may well negate the benefit of being able to use your card as and when you want to abroad.
• Over the counter purchases - On top of this over the counter purchases carry a fixed charge in the region of 99p to £2. Alternatively a percentage fee may be applied of up to 3% of each purchase. Again this will be hiked up when making a card transaction abroad - perhaps to pay for a restaurant or hotel bill. In this case even the competitive deals can be charged at up to 3.5% or more which means factoring in the new cost of the item or service you are paying for - not what you want to be preoccupied with on holiday.
• Monthly service charge - There may be a monthly fee levied by the provider in the region of £5 although this will be determined on how much you use the card and through what channels. Bear in mind the £5 benchmark actually only applies to relatively low usage of loading £250 a month onto the card and making three purchases a month.
• Customer call helpline - Some prepaid cards offer a helpline service but you may be charged at premium rate. Check first if you intend to use the service.
• Other charges - Before choosing which prepaid card to opt for you should also investigate account termination fees if you want to leave the arrangement card replacement fees if you lose your prepaid card or it is stolen or damaged and potential card renewal fees when just like a debit card your prepaid card reaches its expiry date. Bear in mind that some firms also charge a small sum for card inactivity.

Conversely costs to the retailer when you use the card are minimal. This is because merchant fees are in line with those charged for debit card transactions and theres no requirement to adapt IT infrastructure already set up to accept prepaid cards. More competition is likely to enter the growing prepaid market which should it is to be hoped deliver better value to the consumer.

Are prepaid cards secure?

Although they dont offer the same perks as credit cards such as built-in travel insurance and cover for goods bought on the card prepaid cards are still equally - or even more - secure than debit cards. 

For example if they are stolen the card can be blocked or cancelled once the theft is reported which you must do as soon as you discover it. But just like a debit card it cannot be used to withdraw cash or make payments without your PIN number anyway. And if a thief gets past that point he may subsequently be disappointed to discover that he can only ever spend what you have loaded onto the card and no more. 

Some card providers though not all will refund money taken from your card in the unlikely event that criminals do manage to use it. Prepaid cards are also good for making purchases online as there is no trail back to your bank account which if tampered with is a lot more stressful in the long run.

Who can use prepaid cards?

Research by Boston Consulting Group suggests the UK is the largest single market for prepaid cards in Europe and will account for more than 5% of global prepaid card activity by 2010. The impact of the credit crunch may result in more people living back within their means. But prepaid cards are good for more specific consumer sectors too. 

They are a very inclusive form of payment as many are open to people who are under 18 years old, have had credit problems in the past or who have difficulty getting accepted for a standard credit card or bank account for whatever reason. Consumers also generally still prefer using plastic to cash and can monitor what they spend with more certainty.

What else can I do with a prepaid card?

You can make regular payments from your card just like with a bank account. Other people can load money on your card if they have your name card number and bank details. This makes the cards useful for example for parents wanting to keep their children with a controlled income.

2009-03-09 16:14:48 © Moneyextra.com