Prepaid cards

A prepaid card is like a pay-as-you-go mobile phone – you top it up with money in advance.

You use it like any other payment card, in shops or online. Most prepaid cards work at cash machines too. Most retailers accept them, but not all do so always have a backup way to pay. And be aware that you can’t use them for transactions that require a security deposit or preauthorisation, such as car hire firms, hotel bookings and at some petrol stations. 

The difference is that the card isn’t linked to a bank account. You can have your wages or benefits directly sent to your prepaid card, or load cash onto it at participating reload locations.

You can only spend the money you put on it, so there’s no way of going overdrawn or running up a debt. Your payments won’t be recorded on your credit report, and how you use the card will not affect your credit score.

You can choose the amount of money you want to load onto the card, although there might be daily, weekly or total limits on the amount you can add. Cards may be for one-time use, like gift cards, or reloadable.

No two prepaid cards are the same when it comes to fees, so always check before you choose.

The fees can include:

• application fees
• top-up fees
• monthly fees
• renewal fees every three years – some may charge to issue a replacement card when it expires
• UK and overseas cash-machine withdrawal fees
• transaction fees – for example, 3% of the value of each purchase
• inactivity fees – you get charged if you haven’t used your card for a certain period of time
• fees to move unspent money back from the card.

Look for cards that have the lowest fees for how you’ll use it. So if you know you’re going to be using the card for spending, look for a card without transactions fees on purchases. 

Prepaid cards are a good way to make sure you stick to a budget. They can be a good idea if you’re looking for:

• a way to give your children an allowance: when the money runs out, you can choose to top up the card, just like a pay-as-you-go phone

• an easier way to spend abroad: you can load a prepaid travel card with money before your trip and spend when you go away, as an alternative to using traveller’s cheques

• an alternative to having a bank account: if you struggle to get a bank account or have been rejected for another type of card, a basic bank account might be a better solution.

The money put on your prepaid card is classified as electronic money, or e-money. This means it doesn’t get protection from the Financial Services Compensation Scheme (FSCS) if the prepaid card provider goes bust. 

However, all prepaid card providers are required to hold your cash in a bank account ringfenced from their own operating cash. So, provided the prepaid card company has followed the rules, if it were to go bust, the bank or building society where your money’s held will still retain your cash and you’ll be able to get it back eventually. 

Find more in our guide How to complain to your bank, lender or card provider.

This just means you need to be careful not to store lots of money on your card. Put just the amount you need on it for immediate spending and, if you can, keep the rest of your money in the right bank account.

If you lose your prepaid card, or notice fraudulent transactions, contact the provider as soon as possible so they can block it. But be aware that they might charge a fee for a replacement card. 

If you use your prepaid card to buy goods that turn out to be faulty, a service isn’t provided, or a company goes out of business and you don’t receive what you’ve paid for, you might be able to make a claim for a refund under a voluntary scheme called ‘chargeback’.

You can compare prepaid cards using price comparison websites, such as MoneySavingExpertOpens in a new window, but make sure you use more than one as they don’t all have the same deals.

Take a look at your other options:

• basic bank accounts
• a simple guide to credit cards
• using and paying with debit cards.