Prepaid Cards – NerdWallet UK

Table of Contents

What are prepaid cards?
How do prepaid cards work?
Advantages of prepaid cards
Disadvantages of prepaid cards
Am I eligible for a prepaid card?
How to apply for a prepaid card
How to use prepaid cards
Is a prepaid credit card right for me?
Other types of credit card
Prepaid cards frequently asked questions

A Prepaid card works like a pay-as-you-go mobile phone contract – you top it up and use it like any other payment card until the balance reaches zero, at which point you can reload it with cash before you spend again.

These cards can be a useful way to spend overseas, but the main advantage of prepaid cards is that you don’t need to pass a credit check, so they can be a good option if you have a poor credit score, have recently moved to the UK, or have never had a credit card before. There are also several prepaid cards designed for children who are too young to get a debit card from a bank.

What are prepaid cards?

Although they’re sometimes called ‘prepaid credit cards’, there’s actually no credit or debt involved with this type of card. It’s more accurate to think of them as payment cards that you top up with money before you use them.

There are a few reasons why you might want to consider prepaid cards:

If you have a poor credit history and can’t pass the credit checks required for a credit card or bank account with a debit card.
Prepaid cards could help you budget because you can only spend the amount that’s loaded onto the card. This can be particularly helpful for students or young people who are learning to manage their money.
Prepaid travel cards can help you save money on transaction fees when you spend overseas – and, unlike cash, they can usually be blocked if they’re lost or stolen.
If you’ve recently moved to the UK and haven’t yet established a credit history, these cards can be used as an alternative to a credit or debit card.
Some cards allow you to collect redeemable rewards or points as you spend.

How do prepaid cards work?

When you make a payment with a prepaid card it will probably be processed by Visa or Mastercard, which are two of the world’s biggest secure payment networks. Look for the logo on your card, and this will indicate that your card can be used in any shop, online retailer or restaurant that accepts Visa or Mastercard.

Unlike many credit or debit cards, most prepaid cards charge transaction or administration fees. Some charge you to open the account, and you may have to pay around £5-£10 per month to use your card. There may also be a charge for topping up your card, or withdrawing cash from an ATM. Fees vary between providers, so it pays to shop around to get the best deal.

Regardless of the card you choose, the following three steps outline how to apply for prepaid cards, how to load them, and how to use them:

Open your prepaid card account. It only takes a few minutes to do this online, and many providers will then give you instant access to your account. Alternatively, some prepaid cards are available to buy from retailers including Asda, Sainsbury’s and WH Smith. You may also be able to buy them from newsagents and local shops. Prepaid travel money cards are available from The Post Office.
Load your card. In many cases, you can top your card up online by logging into your account on the provider’s website or app. Some cards let you transfer money onto your card via bank transfer and in some cases it’s possible to load your card with cash at a PayPoint location. However, many cards have daily or monthly top-up limits.
Spend with your card. Most prepaid cards work just like credit or debit cards and you can use them online, or in-store – either by entering your PIN or with contactless. You can also use your card to withdraw cash, which is useful when travelling overseas. However, when your balance gets low, you will need to reload your card before you can use it again.

Advantages of prepaid cards

The main advantages of prepaid cards are:

You don’t need to pass a credit check, so they can be a good option if you have a poor credit score or a limited credit history.
They can be quick and easy to apply for online and, in some cases, bought over the counter in shops and newsagents.
They can be useful for travel if you don’t want to carry cash. Some give you the option to spend in different currencies and avoid expensive transaction fees.
Some cards are aimed at children, and can be opened by a parent or guardian on behalf of children as young as six.
Prepaid cards can be a great way to budget as you can only spend what you load onto the card. Some, such as the Tesco Clubcard Pay+, are designed to help customers manage their monthly grocery budget.
There’s no risk of going overdrawn, as you can only spend the amount that’s loaded onto the card.
Prepaid cards are more secure than cash, as you have the option to contact the provider to freeze your card if it is lost or stolen. Your money should also be protected if the card issuer goes bust.
If your card is issued by Visa or Mastercard, you will have access to their chargeback schemes. Meaning if the company you bought from goes into administration, the item you receive is faulty or damaged, or if your order is not delivered you may be able to get your money back.
Some cards offer extra perks and rewards, such as loyalty points and cashback.

Disadvantages of prepaid cards

The main disadvantages of prepaid cards are:

You may have to ‘buy’ your card, or pay a fee to activate the account. There may also be a monthly administration fee, top-up fees, and charges for some transactions, such as ATM withdrawals.
Your purchases won’t be covered by Section 75 of the Consumer Credit Act 1974. This protects credit card purchases between £100 and £30,000, but doesn’t apply to purchases made with prepaid cards.
Although most cards will be accepted wherever you see the Visa or Mastercard logo, there are a few exceptions for this. For example, you may not be able to use them when making a security deposit or if a retailer needs a pre-authorisation, which is common when booking accommodation, hiring a car or paying for fuel.
Some cards require you to make top-ups via bank transfer or debit card, which will be a problem if you don’t yet have a bank account.
Some prepaid cards, such as Vanilla, can’t be topped up or reloaded, so you may need to pick up a new one every time your balance runs out.
Using a prepaid card won’t help to build your credit score because your use of this type of card isn’t shared with credit reference agencies.
Some prepaid cards have online spending limits, which can restrict how you can use your card.

Am I eligible for a prepaid card?

The main advantage of a prepaid card is that you don’t need to pass any eligibility checks to get one. However, some providers will require you to be over 18 and have a UK address – and show photo ID – particularly if you’re looking for a travel money card.

Some prepaid cards are available to children and teenagers – but the account will need to be opened and managed by a parent or guardian. You may also need to have an existing current account with the provider before you apply.

How to apply for a prepaid card

There are two main ways to apply for prepaid cards, depending on the type you choose:

You can pick up some cards instore. For example, you can pick up a Vanilla prepaid card at Asda, WH Smith or Sainsbury’s, and you can get a travel money card at Asda or your local Post Office.
You can apply online via a provider’s website. This should only take a few minutes, but you will need to share details of your address, along with photo ID, such as a passport, driving licence or National ID card, plus a selfie.

Many providers will activate your account straight away, and if you’ve applied online you can expect your card to arrive in around three to five working days.

How to use prepaid cards

The following tips will help you to make the most of your prepaid card:

Check for subscription, activation and transaction fees

Not all prepaid cards are created equal, and some will charge you to top-up your card or withdraw cash, while others will charge a monthly fee. Check the fees before you sign up, so you can avoid them where possible.

Think about how you want to use your prepaid card

Perhaps you need a prepaid card to save on currency fees when travelling, or it seems like a good way to manage your monthly budget for groceries or fuel. If you don’t yet have a UK bank account, you may need to use it for everyday spending. Shop around to find the card that best suits your needs. For example, paying a set monthly fee may mean that you save on transaction fees if you plan to use your card as your main account.

Keep an eye on your balance

Prepaid cards won’t work if you haven’t loaded enough money to cover your expenditure. Be aware that bank transfers to your account may not be instantly available.

Understand your card limits

When spending and topping up, cards can have different limits – so it’s important to check. For example, there may be a maximum amount you can load onto the card in one transaction, a maximum total balance, an annual spending limit, or a maximum amount you can spend each day. Check the terms and conditions carefully so that you’re not caught out.

Watch out for inactivity or cancellation fees

Some providers will charge you if you don’t use prepaid cards for a certain amount of time, which could be an issue if you have a travel money card that you only use once per year. You may also be charged for transferring any remaining balance from your card, or for cancelling your account. So it’s worth using the card for a small transaction every few months – or closing it down before you’re charged.

Is a prepaid credit card right for me?

Prepaid cards can be useful if you can’t get accepted for a bank account or credit card. However, this type of card won’t help you to build a credit history or increase the chances of being accepted for either of these in the future.

Even if you’re not concerned about passing a credit check, prepaid cards can come in handy if you’re travelling, or to ring fence some of your monthly budget to pay for groceries or fuel.

However, it may be cheaper to spend on a standard debit card or credit card. A credit card could also give you access to purchase protection under Section 75 of the Consumer Credit Act 1974, and it may also offer perks like cashback and rewards points.

Other types of credit card

There are several different types of credit cards which may be better suited to your circumstances:

0% interest balance transfer credit cards
0% interest purchase cards
Credit builder cards
Money transfer cards

Depending on how you plan to use it, a prepaid card isn’t necessarily better or worse than a credit or debit card, it’s just different. Prepaid cards can be used to pay for goods and services online or instore, just like a credit or debit card.

However, the key difference is that you can only spend whatever amount you have loaded onto the card. This can be an advantage in some situations, for example if you’re using prepaid cards as a secure alternative to cash, to avoid transaction fees when travelling, or to help you manage your budget.

Prepaid cards do have some disadvantages: you may have to pay additional administration fees, and if you don’t have enough money on the card, your transactions will be declined.

Your money should be safe. This is because money on prepaid cards is considered ‘electronic money’, and prepaid card providers have to keep this in a separate account. So even if they go into administration, you can ask for your money to be returned from the bank or building society where it’s held.

However, there is a risk if the bank or building society where your money is held goes bust, so try to find out which bank your provider uses, as the risk will be far lower if they use an established high street bank.

This depends on the provider. Some give you access to an app, and others will send balance updates through SMS. You should also be able to check your balance at an ATM, or sign into your account to check your balance online.

There are a few different ways to top-up prepaid cards, so it’s best to check with your provider to find out which methods are available, and how long it takes for the money to reach your account. In most cases, you can use one of the following methods, although administration fees may apply:

Use a debit card to add money to your prepaid card, via online or telephone banking.
Make a transfer from your bank account. You will need to know your card’s account number and sort code to do this.
Ask your employer to pay your salary directly into your account, using your card’s account number and sort code.
Add cash at a PayPoint location, or at a Post Office, bank or building society.

This depends on your provider and the way you choose to top-up your card. For example, some cards have a minimum and maximum top-up limit, and this can apply to a single day, a seven-day or a 60-day period. If you’re adding cash at a PayPoint location, you may be limited in how much money you can load onto your card at any one time.

Most prepaid cards charge fees, but you can avoid some of these by planning ahead and thinking carefully about when and how you will use your card. For example, paying a one-off or monthly fee could mean that you don’t have to pay a transaction fee every time you use your card. This may be helpful if you plan to use the card in place of a bank account.

If you only plan to use your card occasionally, for example, when travelling, look for a card with the lowest overall fees – and check that you won’t be charged an inactivity fee if you don’t use your card for several months at a time.

A prepaid card is sometimes known as a ‘pay-as-you-go credit card’ but because you have to load money onto the card before you can spend it doesn’t work like a credit card. It is more like a pay-as-you-go mobile phone contract, as you can top up your account with extra cash as and when you need it.

You can be confident that your money is safe when you use prepaid cards. If your card is lost or stolen, your money should be safe as long as you report it to the provider as soon as possible.

Although your transactions won’t be covered by Section 75 of the Consumer Credit Act 1974, prepaid cards are covered by the Visa and Mastercard chargeback scheme, which gives you some protection if the company you bought from goes into administration or the item you’ve ordered never arrives or is faulty.

In addition, any money that you load onto a prepaid card is classed as ‘electronic money’, which means the provider has to store it securely in a separate bank account. This means that you should be able to get your money back even if your card provider goes bust.

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