Five Questions About: Prepaid cards

How can a prepaid card be used?

Prepaid cards work to a simple "pay-as-you-go" system; the user loads the card with money and they can then use it to make cash withdrawals when they need to or to make purchases in shops.

Where can prepaid cards be used?

As most prepaid cards are issued under well-known brands such as Visa and MasterCard, they are as widely accepted as credit or debit cards throughout the UK and overseas.

Who are they good for?

One of the most common reasons for someone to register for a prepaid card is because they are travelling overseas and want to avoid the high charges associated with using a credit or debit card abroad. Because there is no credit being offered, there's no credit check, making them a popular choice for people with a chequered debt history. Although some prepaid cards need to be registered to a UK address, others do not, so they can be a popular option for people arriving in the country for work. Some cards allow employers to pay wages directly on to them, although cardholders don't earn interest on their balances.

How secure are they?

Because a prepaid card isn't linked to a bank account, there is less risk of identity theft. Holidaymakers can load their card day by day over the phone or internet if they prefer, meaning they can't lose all their spending money to one pickpocket.

If a card is lost or stolen, the provider can cancel it and most will transfer the funds to a new card for a fee. However, cardholders do not receive Section 75 protection under the Consumer Credit Act and money lost through fraud will not be reimbursed.

What charges are there?

You may have to pay an application fee of around £10, although some are free to register, while others charge a monthly fee. They may be billed a small percentage of any amount loaded on to the card or, alternatively, some cards charge a transaction fee when a purchase is made.