How to Compare Prepaid Cards

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Prepaid credit cards are easy and simple to get hold of and can be used in exactly the same way as a regular credit card. This is a growing sector of the market, and new cards are being introduced all the time.

Many prepaid cards are issued by UK Building Societies, and branded under flashy names like Bread or Tuxedo. Some are issued and promoted via specific channels - The Sun newspaper promotes a prepaid card that's basically the Tuxedo card, but done up in Sun branding.

Most prepaid credit cards are alike in the way you can use them. The main differences will be in the fees and charges. As with standard credit cards, choosing the wrong card can cost you dear. The trick is to look at how you will be using the card, and what your lifestyle demands of the card.

For instance, some cards offer free top-ups at the Post Office - if this is a convenient location for you, then one of these prepaid credit cards may be best. However, if you live in a small village with no Post Office, then topping up over the Internet by BACS may be more convenient, and you should look for a card that has free BACS top-ups.

Prepaid cards are suitable for...

• People on a tight budget. If you are on a fixed budget, but need the flexibility of a card - say to buy something on the Internet - then prepaid cards are a good way of ensuring you only spend what you can afford.
• Using for a planned spending spree - by using a prepaid credit card to hit the sales, and only putting what you can afford beforehand on it, then it is a useful budgeting tool to prevent you being seduced by more bargains than you can afford.
• If you don't have a bank account, for whatever reason, then a prepaid credit card is a great way to manage your money and get all the advantages of using a credit card. Your employer can even pay your wages direct onto your prepaid card account via bank transfer.
• Poor credit history - if you've had problems in the past, but need to have the convenience of plastic, say for shopping on the Internet, then a prepaid credit card is an ideal way to access the same payment method as everyone else. An alternative may be a credit card specifically designed for repairing a poor credit history. To see more of these, click here.
• If you are a heavy Internet purchaser, and are worried about potential fraudsters getting access to your card details, one way of limiting any fraud against you is to sign up for a prepaid credit card to use for Internet purchases. This means the maximum you could be stung for is whatever balance you keep on the card, not the whole of a huge credit limit that you never use.
• Parents who want to control their teenagers spending, or give them pocket money in a convenient way could also find a prepaid credit card useful, especially as it can be monitored and topped up online.

These cards are not ideal for...

Well, if you can get a standard credit card, and are happy with the terms and conditions and potential risks (e.g. internet fraud or temptation to overspend), then you will save a considerable amount of money in fees and charges, particularly if you clear your balance on a standard credit card in full each month.

If you're expecting to be collecting all those nice little reward points for every pound you spend on your prepaid credit card, then stop! Some prepaid credit cards do offer reward schemes, but only cash back schemes, and these can be tightly controlled - for instance to qualify for cash back on the Tuxedo prepaid credit card, you need to shop via their web portal.

What to look for

There are two basic types of prepaid credit card. Some charge a monthly fee plus top-up fees and various other charges. But if you know you'll be using your card on an irregular basis, then paying a fee of up to £4.99 each month might put you off.

There is another way - prepaid credit cards are also available on a Pay As You Go basis. This means no monthly fee, but you'll be charged around a 2.95% transaction fee on all purchases. This means that DVD box set of Magic Roundabout you bought off Amazon for £100 has actually cost you an extra £2.95.

Point is this - if you only spend say £100 per month on your prepaid credit card, then the PAYG option may be better for you.

Some prepaid credit cards are designed for specific purposes, and it's worth mentioning the Post Office Travel Money Card at this point - no monthly fee, and no transaction charges for purchases made in the currency of issue (Euros, Dollars or Sterling) make this a better buy than most prepaid credit cards. The only downside is that the initial card issue fee is £10 and you have to choose upfront which currency you want it to be in.

Another specific card is the 3V Vouchers Card, which is designed for Internet, phone or mail order shopping. However, on this card some functions are simply not available e.g. high street shopping or cash withdrawals.

You also may want a card where top-ups are available instantly. With some cards you can use your card within ten minutes of topping up at some retailers, and get notified by text message that it's ready. Other cards and other top-up methods can take longer - up to three working days in some cases. Fine if you're the kind of person who can manage your finances effectively; not so good if you need to get those shoes in the window now!

What to watch out for

The best thing to do is to choose the prepaid card that will give you the best benefits for the lowest cost - sounds easy, yes? But rather than trawling through the benefits of each card, why not start at the other end - the fees and charges, because this is what prepaid credit cards are basically all about.

So, start from the view that you are going to have to pay for having a prepaid credit card, and start by looking at the monthly fee - do you want to pay one? We all know the answer to that, but it may be then worth looking beyond to the top up fees and purchase fees. For instance, most Pay As You Go prepaid cards charge 2.95% for each purchase you make. That's £2.95 for every £100 you spend on the card. Now you can see why you should have at least some idea of how you're going to use the card in order to see which is best for you.

Make sure you read the small print because there are some really inventive charges tucked away in there. It varies between cards, but you can get, for instance, account closure fees, additional card fees or text alert fees.

And here's one to look out for - how much are you charged for the phone call when you contact the call centre to top-up? Some lines cost £1 per minute, so topping up online or at a PayZone may be better.

Don't Forget

To find the best card for you, sit down with paper and pen and write down all the things you are going to use the card for. If you're planning to spend more than £300 per month, then a monthly fee card will be best. Otherwise go for a PAYG option, like Virgin PAYG or Bread.

Next, decide how you will be topping up the card. For instance, if you live next door to a shop with a PayPoint or PayZone, then look for cards offering this method of top-up. Alternatively, if you are quite an organised person and won't need more than one top-up a week, look for the cheapest top up option - this will probably be BACS transfer from a bank account, but may take 3 days.

Finally, look at features like maximum balance or charges for using abroad, text top-up alerts or usage at cash machines. This narrowing down process should give you a good idea of which card to go for.

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