Prepaid bank accounts explained

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Prepaid card accounts are available without a credit check, but they can be expensive. Here we review their advantages, disadvantages and costs and look at how you can use them.
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Prepaid accounts are often referred to as prepaid cards, as this is how you pay for goods and services. They’re popular for those trying to stick to a budget. They also have attractive foreign transaction fees compared with debit or credit cards, making them popular with those travelling abroad. 

They’re often called prepaid credit cards, although this is wrong as they offer no credit facility.

Pros and cons of prepaid bank accounts

Pros

  • No credit check

  • No risk of getting into debt

  • Can help you budget

  • Pay in wages and bank transfers

  • Pay your bills

  • Cards are accepted in most places

Cons

  • Some have monthly charges

  • Fees for several transactions

  • Earn no interest

  • No branch you can use

  • No preapproved transactions

  • No overdraft

What is a prepaid account?

A prepaid account can be used to make transactions instead of a bank account. 

With this option, you load money onto your prepaid card to make purchases. Some cards will allow you to set up direct debits and standing orders, as they come with an account number and sort code.

With prepaid cards, you can only spend the money you’ve got in your account. Anything you spend and the fees you are charged are taken from this balance.

They don’t offer an overdraft or any way of getting into debt, and as such, providers don’t run a credit check first.

How to pay money in

You can pay in with:

  • Bank transfers, also known as BACS, which is how most employers pay your wages.

  • Faster payments, which include when you or someone else sends a transfer from a bank account.

  • Cash in person with some accounts. This can be done by visiting a Post Office, bank or PayPoint store.

Check if there is a minimum or maximum amount you are allowed to pay onto the card each time.

How to spend

Prepaid accounts come with a MasterCard or Visa card that you can use almost anywhere you use a debit card. As with other types of cards, you pay by typing in a PIN or presenting the card to a contactless card reader. 

You can use your card to pay shops, restaurants, online companies and other retailers as long as you have enough in your account to cover the amount you spend.

Many accounts also offer:

  • Direct debits

  • Standing orders

  • ATM withdrawals and balance checking

  • Transfers to another bank account through internet banking or their app

Where can you not use a prepaid card?

You can’t use some prepaid cards for preapproved transactions. These occur when you use a card to pay for something before you know the full price – for instance, at the start of a hotel stay or when you pay for petrol at a self-service pump.

What do prepaid cards cost?

Despite being convenient, prepaid accounts can come with an array of fees, including the following:

  • A monthly charge for holding the account, e.g., £5 or £10 per month.

  • Charges for paying bills – for example, 50p per direct debit or standing order.

  • Cash withdrawals – for example, 50p per withdrawal. Sometimes, there is an additional charge if you take out cash overseas, usually around 3% of the amount you withdraw.

  • Fees for failed payments, like a direct debit that doesn’t go through because you don’t have enough money in your account.

They also attract some of the same charges as current accounts, like fees for duplicate statements, replacements cards or international payments.

How to get a prepaid account

The major banks don’t offer prepaid cards, but you can find companies that offer prepaid accounts using our comparison tool.

Choose an account that offers all the features you need and work out which will charge the lowest fees for your use.

  • If you use it frequently, an account with low charges for transactions may be the cheapest, even if it has a monthly fee.

  • If you only use the account occasionally, one with no monthly fee may be cheaper, even if the costs per transaction are higher.

You can apply online, and some accounts will be opened as soon as you are accepted. You have to wait a few days to receive your new card.

Can you open a prepaid account with bad credit?

 Providers don’t run a credit check when you apply. This includes if you’ve previously missed repayments or even been declared bankrupt.

However, you need to prove your identity and have a permanent address. The provider may have other requirements, like a minimum age and UK residence, so check this before applying.

Can using a prepaid card improve your credit score?

Using a prepaid card can boost your credit rating. Some even come with a credit-builder facility where the card provider lends you enough money to cover the monthly fees, which you pay back over the year.

New bank accounts are offered all the time, so compare all of the best options to make sure you get the right one for you.

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