Prepaid cards

A prepaid card is like a pay-as-you-go mobile phone – you top it up with money in advance.

You use it like any other payment card, in shops or online. Most prepaid cards work at cash machines too. Most retailers accept them, but not all do so always have a backup way to pay.

The difference is that the card isn’t linked to a bank account. You can have your wages or benefits directly sent to your prepaid card, or load cash onto it at participating reload locations.

You can only spend the money you put on it, so there’s no way of going overdrawn or running up a debt. Your payments won’t be recorded on your credit report, and how you use the card will not affect your credit score.

You can choose the amount of money you want to load onto the card, though there might be daily, weekly or total limits on the amount you can add. These limits may be waived when you receive a direct deposit of funds to the card. Cards may be for one-time use, like gift cards, or reloadable.

No two prepaid cards are the same when it comes to fees, so always check before you choose.

The fees can include:

• application fees
• top-up fees
• monthly fees
• renewal fees every three years. Some may charge to issue a replacement card when it expires
• UK and overseas cash-machine withdrawal fees
• transaction fees (for example, 3% of the value of each purchase)
• inactivity fees – you get charged if you haven’t used your card for a certain period of time
• fees to move unspent money back from the card.

Look for cards that have the lowest fees for how you’ll use it. So if you know you’re going to be using the card for spending, look for a card without transactions fees on those purchases. 

Prepaid cards are a good way to make sure you stick to a budget. They can be a good idea if you’re looking for:

• a way to give your children an allowance: when the money runs out, you can choose to top up the card, just like a pay-as-you-go phone.
• an alternative to traveller’s cheques: you load a prepaid travel card with money before you go and you’ll be able to spend it while you’re away.

The money put on your prepaid card is classified as electronic money, or e-money. This means it doesn’t get protection from the Financial Services Compensation Scheme (FSCS) if your bank or building society goes bust. Find more in our guide Claiming compensation if you’ve been mis-sold.

Your prepaid card provider should be able to tell you how your money is protected, this information is usually linked from their homepage. 

This just means you need to be careful not to store lots of money on your card. Put just the amount you need on it for immediate spending, and keep the rest of your money in the right bank account.

If you lose your pre-paid card, contact the provider as soon as possible so they can block it, they might charge a fee for a replacement card. 

If you make a purchase of more than £100, you might be able to make a claim for a refund under a voluntary scheme called ‘chargeback’, if you buy faulty goods, a service isn’t provided, or a company goes out of business and you don’t receive what you’ve paid for.

You can compare prepaid cards using price comparison websites, but make sure you use more than one as they don’t all have the same deals.

Here are some popular comparison sites:

• Money.co.uk
• MoneySavingExpert
• Money Supermarket

Take a look at your other options:

• a simple guide to credit cards
• using and paying with debit cards
• basic bank accounts.