How to Use Prepaid Cards

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Right, you've got your shiny new prepaid card! And at first it doesn't work - that's because you have to activate it, either by calling customer services or via the Internet site.

Once activated you can then top up using your chosen method - different cards have slightly different procedures for topping up at retailers and the Post Office, so you will need to check the details on your welcome pack. However, topping up by phone or online is fairly standard.

Now, you're ready to spend!

Making the most of your prepaid credit card

Always keep in mind the reason why you got the card in the first place. If it was to help you budget, don’t give in to the temptation to have a splurge - you can only spend what you put on the card, and it doesn't turn into free money the moment you load it up. So if you've put cash on your card for the weekly shopping, don't go and blow it on that great leather jacket in the window of Next.

You can use your prepaid credit card for mostly everything that you'd use a regular credit card for - Internet shopping, topping up your mobile, buying groceries etc. Apart from the increased convenience of using plastic if you haven't been able to before, the way to really make the most of your prepaid credit card is to use it so you minimise the charges you pay.

Keeping an eye on things
The best way to monitor your account is online because there are no extra charges. You should keep a frequent check on your spending to ensure you're sticking to your budget. This is even more important if you haven't got a bank account and you're having your wages paid onto your prepaid credit card.

But if you haven't got access to the Internet, you can monitor your prepaid credit card account via the telephone or text messaging. Be aware though, that both of these methods carry a cost. The amount charged by premium rate phone lines to customer service centres can be very high.

Use it as a savings account
If you're getting a card to help you save for a big event, say going on holiday or paying for Christmas, then think of it as a savings account. Put a little in each week and soon you'll have more than you realised.

However, watch those fees - if you're only going to use it for one or two weeks in the year, then you need calculate whether Monthly Fee card or PAYG card is better.

So, lets say you're planning to spend £500 on Christmas, and you're saving for it weekly on your monthly fee prepaid credit card. 12 months at £4.95 per month is around £60 per year in charges. But if you go for a PAYG card, then you'll pay purchase fees instead, which on £500 would work out at around £15. The point at which you’d be better off getting a monthly fee card is if you're going to be spending more than £2,000.

Now, if you're saving for a holiday there's a cannier option. The Post Office Travel Money Card can be issued in Euros or Dollars as well as Sterling. So if you're planning to go to the US in June, but the Dollar rate is looking good in February, buy your Dollars then and save them on the Post Office Travel Money Card.

Remember though, prepaid cards will not offer you any interest on the money in your account. So if you do have an instant access savings account with your bank - your money will earn more interest in there than left on a prepaid card.

The right card for the right job
If you've chosen a PAYG card, and you find your monthly spend is well in excess of what you anticipate, then it will be worth you while to swap to a monthly fee card.

Always keep the way you use your card under review to ensure you have the card whose fee structure matches your lifestyle and card usage.

Things to watch out for...

You need to be aware of the small print, because in one or two circumstances it could make a big difference, and leave you in an embarrassing or inconvenient position.

Car Hire
Picture the scene: You've arrived on holiday with the family. You've lugged the cases from the carousel to the car hire desk; you're hot and tired and need to crash at your apartment on the other side of the island. But - the car hire desk won't accept your card, and you're stuck with just a few euros and no way to get to your destination.

As a general rule, you can't use a prepaid credit card to hire a car. This is because of the way hire firms take a swipe of your card for a deposit and then charge the proper amount when you return the car. Some prepaid credit cards will let you hire cars, for example, the Cashplus Prepaid Gold MasterCard - but you need to let them know in advance.

You could lose your money
We all know the problems at Northern Rock, right? And we all thought that all UK financial institutions were solid. OK, but how does this affect my prepaid credit card?

Well, prepaid credit cards are essentially a form of savings, and your actual money is held at the financial institution that issues the card. Prepaid credit cards fall outside the scope of any financial protection scheme, so if the financial institution goes bust while you've got a balance of say £500 on your card, you've lost your money.

Card Expiry Dates
Prepaid cards have expiry dates. This can range from 12 months to 3 years. Unlike normal debit or credit cards though, when a prepaid card expires you won't be issued another one automatically nor for free. Effectively, you'll have to purchase another card and then if it's with the same provider - phone them up to arrange for any outstanding balance to be moved over (they may charge for this) - or spend what's left on the original prepaid card before it expires and then switch over to the new one.

Summary

You can make the most of your prepaid credit card by understanding why you have one. If you know what you're going to be using it for, then you can better choose the card that will result in you paying the lowest fees.

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