Beginner's Guide To: Prepaid cards

What is a prepaid card?

Essentially, it's a pay-as-you-go debit card. Money is loaded on to the card and it can be used to pay for purchases in shops, restaurants and online, or to withdraw money from a cash machine. You can only spend what has been loaded on to the card, so you can't get into debt.

Most prepaid cards are provided by Visa and MasterCard, and are widely accepted around the world.

Why would I want one?

Although you can get prepaid cards for use in this country, most are aimed at those heading abroad. They are popular with holidaymakers and travellers; parents get them for children on gap years, as the card can be topped up from here in the UK as and when their offspring run short of money. Cards tend to be available in euros or dollars, although Caxton FX has recently launched a Global Traveller Card that can be used if you're going outside the euro or dollar zones.

As when you use a credit or debit card abroad, you benefit from the Visa or MasterCard exchange rates which tend to be better than those available from bureaux de changes and high-street banks.

Are there any catches?

Fees and charges tend to be lower than those levied by most debit- and credit- card providers for overseas use, but they vary widely so it's worth comparing costs before you buy.

Most card providers charge a cash withdrawal fee, usually a percentage of the withdrawal amount, but some levy a flat fee that can work out cheaper.

Other fees to watch for include loading fees – some providers charge each time you load money on to the card. You may be charged to buy the card, or replace it if it's lost or stolen.

It's also important to check how money can be loaded on to the card. In many cases you'll be able to top it up online or over the phone, but in some instances you can only top it up at the outlet it was bought from – which is not much use if you are heading overseas.

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