Prepaid cards How do prepaid cards work?

Prepaid cards may help kids budget on school trips

Parents may prefer a prepaid card to cash

How prepaid cards work

The idea behind prepaid cards is a simple one – you load the card with cash, and use it to withdraw cash or make purchases. Once your balance hits zero, you can't use the card to withdraw any more money or pay for any more goods. So, it's misleading to call them prepaid credit cards. If anything prepaid cards work more like a pay-as-you-go mobile phone.

You can preload most cards at ATMs, over the internet, via text messaging or by phoning your provider (quoting your debit or details). You can also buy and load cards at a variety of outlets such as the Post Office, high-street banks and other retailers. As this is a relatively new type of product, it's hardly surprising that several non-traditional financial providers offer prepaid cards, including several national newspapers and music retailers.

Most prepaid cards are issued under the Visa, MasterCard, Visa Electron or Maestro brand, meaning they're established and widely accepted.

In our Which? Money survey, three quarters of members had heard of prepaid cards, but only 3% actually have one. While uptake is currently low, we found that among non-users in our survey, 13% would consider getting one.

Prepaid card uses

There are several notable uses for prepaid cards, including:

Holidays – Concerns about theft, pickpockets, fraud and other crimes can dampen some people’s enjoyment of a lazy overseas holiday. If this is the case, a prepaid card would at least mean that if the worst happened, all you’d lose is the amount you had pre-loaded onto the card. As you can load the prepaid card over the phone or online, for instance, you could manage the amount you have on the card while you're away rather than pre-load your whole holiday budget before travelling.

School trips – Parents might prefer to send their children off on school trips with a prepaid card, which they could pre-load with enough spending money for the duration of the trip, or load the prepaid card on a daily basis over the phone. This may be preferable to handing over a wad of bank notes, which could be spent much too quickly. 

Domestic management – A prepaid card, loaded on payday, could serve as a budgeting aid and be used to store money for the weekly shopping trip or for bills.

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