It’s essential you choose the right prepaid card for your specific situation or you could end up wasting hundreds of pounds on avoidable fees.
A prepaid card works just like a normal bank account, except it doesn’t allow you to go overdrawn and pays no interest on credit. It’s basically a barebones account that is available to absolutely anyone.
It has proved particularly popular with people unable to apply for a standard bank card, those with bad credit history, or those who simply have chronic debt tendencies.
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Charges vary wildly
The main downside of prepaid cards is that the charges can prove extremely expensive.
As you can’t go into debt – and thus rack up interest – providers levy more fees than traditional banks in order to make a profit. That means you can be charged for accessing your money, depositing it, or even enquiring about your balance.
The problem is these fees vary from one card to the next, so the cost effectiveness of each will depend greatly on how you use it. We take a look at the four most likely scenarios in which someone would take out a prepaid card and suggest the most appropriate deal for each.
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Best card for a poor credit history
As we mentioned at the start, prepaid cards are extremely popular with those people unable to open a traditional bank account, either through a poor credit history or no history whatsoever.
Prepaid cards require no credit checks, so you’ll be able to apply for pretty much any deal on the market, but the Cashplus Gold Card is the only one that will actually improve your credit rating.
The card comes with an optional ‘credit builder’ facility that converts the £4.95 monthly charge you’d normally pay into a 0% loan worth £59.40 that you will pay off over a year.
This successful loan completion is then reported to a credit bureau, which improves your rating. The Cashplus Gold card won’t get you a stellar rating on its own, but it is another vital step towards that goal. Read more about improving your credit rating here.
Earn more interest on your bank account
Best card for frequent use
Just as it is cheaper to sign up for a mobile phone contract when you’re a heavy user, so you should choose a pay monthly prepaid card if you plan to use it frequently.
Such cards charge far lower fees than the pay as you go (PAYG) variety. For example, Tuxedo’s pay monthly card comes with a £4.99 fee, but doesn’t charge you for any UK transactions, while cash withdrawals cost 50p.
The PAYG card charges 2.95% on all UK transactions and 1.5% (minimum 99p) on cash withdrawals, so it wouldn’t take long for the additional costs to pile up.
The Tuxedo pay monthly card is really one of the best on the market, as you also get free bank transfers and top ups at a high street branch. The down side is you’ll have to pay a £9.95 purchase fee, and you can’t top up more than £1,500 at a time. For a more detailed overview of the charges, see the table at the end of the article.
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Best card for your kids
Prepaid cards are a great way to teach your children about finances, without the risk of them racking up debt/clearing out your bank account.
The problem is that such cards can be used to buy age-restricted goods like alcohol, or even gamble online. The Urelife prepaid card helps prevent this by including a government-approved proof-of-age verification that provides retailers with all the information they need about the card owner’s age.
The card has a minimum balance of £10 and a maximum of £500 (for 12-15 year-olds), £1000 (16-17) or £3000 (18+, 21+). It does come with a fairly hefty £12.95 purchase fee, but at least the other charges on the card are lower than average.
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Best card for holidays abroad
Here you’re looking for a card that comes with no setup or monthly fees, as you’re not going to be using it that often each year.
The Post Office Money card fits this bill, and also allows you to avoid the dreaded 2.75% foreign transaction fee. This is because you can open a Euro or Dollar-denominated account and simply top up on local currency instead of Pounds.
Also, the card is completely separate from your bank account, meaning you’re less likely to fall victim to fraud or identity theft.
So what’s the downside? There’s a 1.5% commission for loading £ on the card (€ and $ is free), and a £2 charge every time you withdraw cash from an ATM abroad.
Yet despite these charges, the Money Card is an attractive proposition that will probably work out cheaper than spending on your existing current account.
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| Cashplus Gold | Tuxedo (Pay Monthly) | UreLife | Post Office Money Card |
| Purchase Fee | £9.95 | £9.95 | £12.95 | - |
| Monthly Fee | £4.95 | £4.95 | - | - |
| Transaction Fee (UK) | - | - | - | - |
| Transaction Fee (abroad) | 2.75% | - | 2.5% | 0% - 2.75% |
| Cash Withdrawal (UK) | £2 | 50p | 50p | £1.50 |
| Cash Withdrawal (abroad) | £3 | £2.25 | £1.50 | £2 |
| Top Up Fee | - | 0% - 3% | 0% - 3% | 0% - 1.5% |
| Replacement Fee | £9.95 | £4.99 | £10 | £5 |
