Prepaid cards can be an excellent way to manage your everyday finances.
In addition to not allowing you get to into debt, these flexible friends enable people who cannot get a bank account, or who own a poor credit history, to receive access to the convenience of card payments.
How do prepaid cards work?
The best way to explain how prepaid cards work is by relating them to mobile phones.
Pay as you go mobile phone tariffs are a way of paying for texts, internet usage, and calls, for those who are still too young for a contract of their own or simply for those who do not require to have a phone contract.
You are simply paying for what you use. You pre-load, or “top up” your mobile phone with credit. If you do not have enough credit to send a text or make a call, you can't.
Prepaid cards work in a very similar manner. You pre-load money onto a card, which you can then spend any time. You can only spend what you have put onto the card, so you cannot get into debt.
The cards are regularly offered over the MasterCard payment network (although there are some Visa cards that offer this too), which means that you can pay using the card wherever a MasterCard is accepted. In the United Kingdom, that is most restaurants, shops, and online retailers.
Prepaid cards include the same chip and pin technology that you get with a credit or debit card. You can also be able to withdraw money from an ATM.
Who are prepaid cards good for?
You cannot get into debt when you use a prepaid card, and because of this, there are no credit checks that are to be performed as compared to when applying for a credit card or current account.
Prepaid cards might be good for you if:
- You have no credit history
- You have a poor credit history
- You wish to stay in control of your spending
- You cannot get a UK bank account
- You want to spend using the card when abroad but choose not to take credit or debit card
What is the catch?
The “catch” with prepaid cards is unquestionably the fees. This is the number one thing that you need to look out for when determining the best prepaid card for you. Prepaid card providers can charge you a monthly management fee, a fee for topping up, even fees for using the card to withdraw cash at an ATM or make purchases.
Consider how you will use the card, where and how often, to determine the card that is best.