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Prepaid Cards - An Explanation

Prepaid Cards - An Explanation

The concept of prepaid cards can be confusing. In one sense, the prepaid card is a contradiction in terms; after all, it does not come loaded with 'free' cash. Customers still have to pay for transactions with their own money. In reality, prepaid cards offer a convenient way to pay for goods and services while guaranteeing that the cardholder cannot spend more than he can afford.

Pay before you go

A prepaid card can be used in exactly the same way as a conventional debit or credit card. The big difference is that you load the card with funds prior to spending and can only use the card up to the amount of money you have already loaded onto it.

It is not possible to spend more than has been put on the card, hence preventing the possibility of getting into debt. This means that the cards are a great way to provide funds and spending ability for a son or daughter, who might get carried away if given a credit card.

Cash is not necessarily king

While it is always nice to have some money in your wallet or purse, cash is not the safest way to carry your available money. If it is lost or stolen you could be stranded without any ability to get a replacement. Many insurance policies will not cover lost cash and such an incident could be crippling. A prepaid card often offers exactly the same protection as a normal credit card in that the card provider will be able to offer telephone or online support and usually be able to get a replacement card to someone quickly.

Prepaid cards also have another advantage in that they are not linked in any way to your bank account. This means that the anxieties that can arise from modern online shopping where a third party can steal passwords and personal details are removed.

For holidaymakers a prepaid card is an ideal solution. Available in several currencies, they allow travellers to purchase their currency before they go and have it loaded onto a prepaid card. This can mean excellent exchange rates, but also a reduction in charges, as nothing will be lost when spending abroad on commission or transaction charges. There is usually a charge made for withdrawals from ATM machines, but these are usually reasonable. As prepaid cards are accepted by shops and restaurants in the same way as a conventional credit card, the need to carry cash is not great.

Of course, there are some points to bear in mind before applying for a prepaid card. Although prepaid providers are backed by financial institutions such as banks and building societies, it is worth checking what happens if your provider were to go under. Prepaid cards do not always offer the same level of consumer protection as regular cards. In particular, cardholders could experience difficulties if they claim money back from the card company if there is a problem with a purchase or service provider. Some providers of prepaid cards offer excellent protection, however, so this is more a case of shopping around and reading the terms.