Pre-paid cards: ideal for holiday spending

If the cold winter weather has prompted you to think about booking your summer holiday, you may also be considering your options when it comes to managing your money while you're away. Pre-paid cards can be especially useful in this regard.

This type of plastic sees you top up the card with money that you can then spend while you're abroad, a kind of simplified version of a debit card.

There are numerous benefits to using pre-paid cards, including the fact that you can't spend more money than you actually have, as well as increased security compared with carrying cash with you.

Plus, you can top up your card in the currency of the country you're visiting, so you don't have to make complicated exchange rate-related calculations when paying for something in a shop!

However, as with any kind of financial product, there are several things you need to keep in mind when it comes to finding the right card for your needs.

One of the main issues is cost. You can't simply take out a pre-paid card, load your money on to it and use it for free. Providers need to make a profit somehow, so there are various fees and charges associated with this type of holiday finance.

Initial fees to look out for include a setup charge for creating your account - typically in the region of £10 - as well as fees for topping up your card.

Then there are the charges associated with actually using the card. Whether you make a purchase in a shop or withdraw cash from an ATM, there is likely to be a transaction fee of some kind to pay.

This will take the form of either a percentage of your overall spend - meaning cards that use this fee structure are cost-effective if you make a high volume of purchases - or a set amount that is charged every time you buy something.

Some cards come with a monthly fee that you have to pay simply for using the product, while others will also impose regular charges that are incurred after the card has been inactive for some time. In the latter case, it's always best to cancel your pre-paid card if you're unlikely to use it for quite a while.

Another issue to think about is the exchange rate. If you top up your card in the currency of your destination, this is not a major concern. However, if for some reason you need to make a purchase or withdrawal in a different currency to the one on your card, you will need to consider the exchange rate and the associated fees tacked on by the provider.

If your main reason for applying for a pre-paid card is the fact it is more secure than cash, you should look into whether the card company you're considering has a policy for replacements in the event your plastic is lost or stolen.

Most providers that offer this charge around £10 for giving you a new card, but this is usually worth it when you can still access the original funds.

Not sure a pre-paid card is the best option for you? There are several other ways you can spend your money while overseas, although these too have their advantages and disadvantages.

Carrying cash is a popular method, but this comes with security risks. However, you can do away with the various fees associated with using plastic, although you will need to carefully research exchange rates before you buy.

Traveller's cheques are probably seen as old-fashioned these days, but they still have their uses. They work in a similar way to cash, but with added security, and if you take out American Express traveller's cheques for use in the USA, they can be utilised in the same way as hard money - including cash change - at many establishments.

Credit cards can be useful as a means for spending money abroad, but you will need to consider all of the various fees and charges before you find one that offers a good deal. Don't forget that you will have to pay off the entire balance each month to avoid interest payments.

Debit cards are usually not a good option for overseas expenditure due to the high fees associated with them, although there are a few products that can be both useful and inexpensive if you're prepared to look around.

Pre-paid cards UK

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2012-02-10 15:41:09 © Moneyextra.com