How do travel prepaid cards work?

Pros and cons of spending abroad with a prepaid card

How do they work?

You can spend on them in other countries and currencies instead of using cash, travellers' cheques or your credit or debit card.

You load money onto it using your debit card, a bank transfer or adding cash in person. When you take it abroad you can:

• Withdraw money from cash machines

• Spend on the card in businesses like shops and restaurants

You can use it in the same way as a credit or debit card, but you can only spend the money you have already added to your balance. This is because prepaid cards do not let you borrow money.

Here is how to use a prepaid card and how to manage your account.

Can you use them for any kind of transaction?Where else can you use the card?

What are the advantages?

Normal prepaid cards charge higher fees if you use them abroad. But travel prepaid cards are usually cheaper to use abroad, and some charge no fees on foreign transactions or cash withdrawals.

This makes them cheaper to use than most credit or debit cards.

You do not need to work out exactly how much you will spend before you travel, as you can add more funds to the card if you run out.

They can also be more secure than taking cash because if it is lost or stolen:

• Another person would need to know your PIN to use it in a shop or cash machine

• You can cancel it as soon as you realise it is missing

• You could get the balance on it transferred onto a replacement card

Here are the advantages and disadvantages of prepaid cards

What currencies can you spend in?

There are three types of travel prepaid card:

• Sterling cards show your balance in pounds and let you spend in a number of different currencies. They convert your balance to that currency each time you spend or withdraw cash and can be used in several countries.

• Single currency cards show your balance in the foreign currency they offer, e.g. euros or dollars. When you add money to the card, it is automatically converted to its currency.

• Multi currency cards offer several different currencies and let you hold a separate balance for each of them. For example, you could hold £200, $300, €100 and £0 in the other currencies the card offers.

Before you apply for a card, make sure it lets you spend in the currencies you need.

What exchange rate do you get?

Your card provider sets the exchange rate. They base their rates on the spot rates offered by the company that processes its transactions, Visa or MasterCard.

The best rates on a prepaid card are these spot rates with no extra fees added. But most providers add their own fee on top of this, e.g. 1.5%.

If your card keeps your balance in pounds and lets you spend in multiple currencies, it converts to the new currency each time you spend on the card or withdraw cash. This means the exchange rate usually varies each day you use the card.

If your prepaid card keeps your balance in the currency you want to spend in, like euros or dollars, your exchange rate is set when you load money onto the card.

For example, with a prepaid card that lets you spend in dollars:

• You pay on £500

• The exchange rate that day is 1.3 dollars to the pound

• Your card converts it to $650

If the exchange rate goes up or down before you spend the money on your card, this will not affect your balance: you would still have $650 to spend.

What is peer to peer exchange?

How to find a travel prepaid card

Look for the right currencies

You can find prepaid cards you can use abroad here. Only apply for a prepaid card if it lets you spend in the currencies and countries you need.

You can also compare:

• Prepaid cards that let you spend in dollars

• Prepaid cards that let you spend in euros

Check the cost

Prepaid cards come with several fees, including:

• A fee for buying the card

• An annual or monthly fee for using the card

• Fees for adding money onto the card

• Cash withdrawal fees

• Transaction fees when you make a purchase on your card

Fees for loading money on the card, withdrawing cash or spending abroad can be charged at a flat rate or as a percentage of the amount you are adding or spending.

Work out how much you expect to spend abroad before you travel, including:

• How much you expect to take out at cash machines. Decide if this is likely to be in one go or several smaller withdrawals.

• How much you expect to spend on your card in shops, restaurants and other businesses.

You can then check how much each card charges for this and choose the cheapest one.

Consider the alternatives

You can also spend abroad using cash, travellers' cheques, a credit card or a debit card. Here is how much they each cost and how to decide which to use.