What are the advantages?

No credit checks when you apply

Prepaid cards do not let you borrow money because you can only spend money you have already paid onto their balance.

This means that your credit record is not checked when you apply, so you could be accepted even if you have bad credit or have been rejected for credit cards or bank accounts.

Could improve your credit rating

Most prepaid cards do not show up on your credit record, so they do not affect it positively or negatively.

However, some prepaid cards could rebuild your credit record if they have a feature called Creditbuilder.

There is usually a monthly fee for this feature, but paying this each month counts as a loan repayment and shows on your credit record. After several months, your credit record could start to improve as long as you keep making the payments.

Widely accepted

The transactions on a prepaid card are processed by Visa or MasterCard, which means they are accepted by most businesses that take card payments.

You can use them in the UK or abroad:

  • In person

  • Online

  • By phone

  • By mail order

Useful for budgeting

Prepaid cards can help you plan your spending because you can only use money you have already loaded on the card. This means you can avoid:

  • Overspending because you can just pay on the amount you intend to spend over a certain period, e.g. until payday or while you are on holiday. Once you have spent it all, you cannot use the card until you add more money.

  • Getting into debt because there is no overdraft or any other way of borrowing money with a prepaid card.

You can also plan your spending by keeping track of your balance and the transactions you have made using your card's online account or app.

You can spend abroad

You can use prepaid cards abroad, but some charge higher fees for transactions outside the UK.

However, travel prepaid cards are designed to cost less to use in other countries, and some come without fees for spending or withdrawing cash abroad.

Additional cards for your family

You can get more than one prepaid card linked to the same account. This means you could have one card to use yourself and additional cards for your partner, children or even friends.

This can also be useful for businesses with two or more employees that need to make purchases.

What are the disadvantages?

They can be expensive

Prepaid cards can be more expensive than spending on a debit or credit card because they come with fees like:

  • A fee for buying the card

  • Monthly or annual fees for using the card

  • Fees for paying money onto the card

  • Fees for paying with the card

  • Cash withdrawal fees

  • Charges for not using the card

  • A charge for closing your account

However, they do not let you borrow money, so they do not come with the interest and fees that credit cards or overdrafts can charge.

They do not work for some transactions

Most prepaid cards do not allow you to make pre authorised transactions. This includes when you pay for anything when the final cost is not yet known, including:

  • Paying for petrol at the pump*

  • Paying to hire a car

  • Paying for a hotel room

  • Setting up a tab, e.g. in a pub

You could use your prepaid card to pay at a till inside the petrol station instead

This is because your balance might not be enough to cover the final bill amount, and prepaid cards do not let you borrow money to cover the rest.

Some prepaid cards can be used for these transactions, but your money may be ring fenced. This means a deposit amount is frozen on your card for as long as 30 days to cover what the transaction could cost.

For example, if you pay with a prepaid card to check into a hotel, they may ring fence 200 of your balance to cover the possible bill. Even if your final bill came to 80, you would not be able to spend the remaining 120 until it is unfrozen, which could take up to 30 days.

Less purchase protection than credit cards

Most prepaid cards do not offer Section 75 protection, which is a feature that comes with credit cards to refund you if something goes wrong with a purchase.

However, you could instead use the Chargeback scheme to get your money back if what you buy is lost, faulty or incorrect and you are unable to get the money back from the retailer.

Less protection for the money than your bank account?

The money in your current and savings accounts is protected by the Financial Services Compensation Scheme (FSCS). If your bank or building society went out of business, you could get back up to 85,000 of your money held with them.

Prepaid cards are not protected by the FSCS, but if your card provider went bust you could still get the money on your balance back.

This is because your money is looked after by a bank or building society, not by the card provider.

However, if that bank or building society went out of business, you could lose all of the money on your prepaid card.

How to choose a prepaid card

The best card for your needs depends on how you want to use it. For example, if you will mostly use it to withdraw money from cash machines, a card with low ATM fees could work out cheapest.

You can pick the cheapest by:

  • Estimating how often you will load funds onto the card, spend on it and withdraw cash

  • Deciding how much you are likely to add onto the card and spend each month

  • Checking the fees on each card in our prepaid card comparison

  • Working out how much each card would cost you each month and choosing the cheapest

What types can you get?

If you need your card for a specific purpose, you could get one designed:

  • To be used abroad: Some cards come with cheaper fees for spending abroad or let you hold a balance in other currencies. Here is how to use a prepaid card abroad.

  • For your business: These cards can be held in the name of your business, and you can usually get more than one if you need to issue them to several employees. They will only be able to spend money you have added to the card's balance.

  • For your family or other people to use: You can get joint prepaid cards if you want one for yourself and additional cards for your family or friends.

How to apply

Once you have found the best prepaid card, you can usually apply directly through the provider's website. Here is how to get a prepaid card.