What is a prepaid travel card?
Prepaid travel cards, also known as ‘currency cards’, allow you to load money onto them in pounds and spend in another currency.
This type of card generally comes with no foreign exchange fees on spending or cash withdrawals and usually offers competitive exchange rates, saving you money compared to using your everyday debit or credit card.
Plus, unlike a credit card or debit card linked to a current account, prepaid cards have no borrowing facility – helping you avoid overspending on holiday.
Types of prepaid travel currency cards
When looking for a prepaid travel card, you should make sure it works for the currencies you need for your trip.
There are three types of prepaid travel cards to consider: sterling, single currency or multi-currency.
- Single-currency cards are limited to one type of currency, such as euros or US dollars. Pounds are converted to the nominated currency when you load them, locking in that day's exchange rate. This is great if you expect currency rates to fall and the pound weakens, but you’ll lose out if the pound later strengthens.
- Multi-currency cards allow you to load a separate balance for several currencies in one place. For example, you could have £100, $200 and €300 stored on one card.
- Sterling prepaid cards allow you to load your card in pounds and spend in a number of different currencies. Each time you spend or withdraw cash, the pounds are converted to the currency you need at the current exchange rate.
There are pros and cons to opting for a specific currency card, over a Sterling card.
On one hand, you'll know exactly how much of the local currency you have to spend, and won't be hit by any dips in the pound while you're overseas. On the other, if the pound rises in value, you'll miss out on any increases.
What exchange rate do you pay?
Prepaid cards providers offer different exchange rates.
Some use the 'interbank rate' (the rate banks charge one another) and others may use Mastercard or Visa's exchange rates.
In some cases, a provider may pick one of these rates, then apply a percentage on top, usually between 1% and 2.5%.
When picking a prepaid travel card you should compare the exchange rates offered as well as the card’s fees (more on this below).
Prepaid travel card fees and charges
Prepaid cards designed for spending abroad are usually cheaper than spending on your everyday debit or credit card.
However, almost all prepaid cards currently on the market come with a variety of fees and charges. Common charges to watch out for include:
- Application fees - some providers apply a one-off charge to open the account ranging from £5 to £10, though most will offset this if you load a certain amount.
- Monthly fees – the worst prepaid cards will charge an ongoing fee just for holding the card. It can range from £2 to £5 a month, which can be hugely expensive over a year.
- Top-up fees – if you're using a credit card to top up your prepaid card you could be charged a fee by your prepaid card provider. Plus as it counts as a ‘cash transaction’ your credit card provider could charge you a fee and interest. So it’s usually best to use a debit card to top-up your account.
- UK and foreign ATM withdrawal fees - some prepaid cards charge for using ATMs abroad, usually £1.50 to £2 per withdrawal. Some providers will waive the fee if you withdraw a certain amount. You can minimise the risk of being hit with fees by planning how much you want to spend before you travel and taking out cash in one lump sum.
- Cross border fees - if you use your prepaid card for a transaction that's not in your card's currency, you could be charged a fee of around 2.75%.
- Inactivity fees – if you don’t use your card you could also face a penalty. Some providers will charge around £2 a month if you haven’t spent on the card within 12 months.
- Replacement fees – prepaid cards, like credit and debit cards, come with an expiry date, which can range between one and five years after opening. You'll normally have to pay a renewal fee of around £5 if you want to continue to use the account.
- Redemption fees – some providers charge a fee to get any money you haven’t used back. This can be up to £10 so it’s wise to only load what you plan to spend and nothing more.
Prepaid cards also often come with limits on loading and transactions, which could leave you in a tricky situation if you aren’t aware of them. For example, if you're likely to want to withdraw lots of cash, it's no good picking a card with a £50 or £100 per day limit for cash withdrawals.
Prepaid currency card vs credit or debit card?
Before you consider a prepaid currency card, you should check if your current credit or debit card has any fees for overseas spending. If it does charge fees for use abroad, it's likely to be a more expensive than using a prepaid card.
Specialist travel debit and credit cards come with fewer fees than a prepaid card and will give you a borrowing facility - which could be useful to cover emergency situations while you're away.
In addition, if you're using a travel credit card for a purchase costing between £100 and £30,000 (even when abroad), you'll also get section 75 protection.
That said, applying for a credit card or current account for a debit card requires a credit check, whereas applying for a prepaid card doesn’t. So if you have a poor or no credit history it will be easier for you to get a prepaid card.
Are prepaid cards safe?
Prepaid cards offer a secure way to carry cash when abroad.
They come with the same security features as credit and debit cards, so you need a PIN to withdraw cash or use them in person.
If your card is stolen or lost, you'll usually be able to call your provider to freeze it and move the balance to a new card. Plus, even if someone managed to use your card, they couldn't spend more than the balance you loaded it with.
It's also worth bearing in mind that prepaid cards offer no protection for losses under Section 75 of the Consumer Credit Act.
However, redress may be possible under the MasterCard or Visa chargeback scheme.
What if the company goes bust?
The Financial Services Compensation Scheme doe not cover deposits onto prepaid cards.
Most prepaid providers will deposit customers' cash in a ring-fenced account held in a bank or building society. So, if the prepaid company goes bust, your money should be protected by the bank holding your cash.
However, if the bank or building society fails, your cash won't be protected. So you should never store lots of money on a prepaid card, just what you need to spend in the near future.
Where can I use a prepaid travel card?
Prepaid cards are usually issued by major card networks like Visa or Mastercard, meaning they can be used in millions of places around the world, as well as online, just like a debit or credit card.
You should be able to use your card at most ATMs abroad, and at most retailers that accept card payments.
However, there are some notable exceptions to this, including car hire firms, hotels and petrol stations that require pre-authorisation.
Pros and cons of prepaid travel cards
If you’re considering getting a prepaid travel card, here are the pros and cons to weigh up.
Each card provider will have its own terms and conditions, so read them carefully before you sign up.
Prepaid travel cards FAQs
Still have questions about prepaid travel cards? Take a look at our FAQs to see if we have the answer.
Should I pay in pounds or the local currency?
When abroad you will sometimes be asked if you want to pay or withdraw cash in sterling or the local currency. This is called dynamic currency conversion and is usually best avoided.
With a specialist prepaid card you’ll get a better rate paying in the foreign currency rather than in sterling. In fact you might be charged a fee for paying in sterling if you don’t have a multi-currency card.
What happens if my prepaid card is lost or stolen?
Like travellers cheques, your money is safe and will be replaced if the prepaid card is lost or stolen.
However, you may be charged for calling the customer helpline and for emergency card replacement by courier.
Exceptions include Travelex, which operates a 24-7 freephone emergency number and offers free money transfer anywhere in the world for lost or stolen prepaid cards.
As long as you contact the provider of your prepaid card and get it blocked, you shouldn't lose out on any money, though you may have to pay up to £10 for a replacement card.
Bear in mind that if your prepaid card is contactless it could be used for a series of small, fraudulent transactions, so always alert your card provider as soon as possible. It's also worth alerting local police or security services if there's been a theft - you may need an incident number to claim losses back on your travel insurance.
Why can't I use it for car hire or a hotel room?
Most prepaid cards don’t allow you to make pre-authorised transactions. These are often required when you have to pay for something where the final cost hasn’t been decided, or where you use the service before paying.
As such, you may not be able to use your prepaid car to pay for petrol at the pump, hire a car, or pay for a hotel room.
What if I have an emergency or run out of money overseas?
You'll be able to load more money onto your prepaid card after you've activated it, usually through the provider website.
Most cards have daily withdrawal limits, so make sure you can withdraw enough cash to cover you for the full day.
Keep in mind that prepaid cards don't have a borrowing facility - so you won't be able to rely on it for emergency funds. For this reason, it can be wise to bring a credit card overseas with you, in case you need to buy flights home or pay out-of-pocket for medical expenses.