Credit, debit, prepaid or cash?
Call me old-fashioned. But I am not that keen on prepaid cards. These are
often touted as a good way to spend abroad. And they do have some advantages.
But they can be expensive.
Although prepaid cards look like any other plastic card and have the
Mastercard or the Visa logo, they are very different. With a credit card you
borrow the money and pay it back later. With a debit card the money comes
straight out of your current account. But a prepaid card is loaded up with money
in advance. That money is spent as you use the card. When it is gone you have to
reload – or stop spending!
Some prepaid cards can be loaded up with other currencies such as euros
or US dollars. They often claim to give you ‘better rates than you get on the
High Street’. Which is true if you convert a bundle of tenners into euros or
dollars. But the exchange rate is generally worse than the rate offered to you
by Visa or Mastercard. They buy so much currency every day that they usually get
the best rates. So paying with a credit or debit card in the local currency can
be cheaper.
There are other traps to beware of. If you lose a prepaid card you will
be charged a fee. If you do not spend all the currency then you will be charged
a fee to convert it back into Sterling. If, instead, you try to use it in the UK
for cash withdrawals or for spending in shops you will be charged a fee. If you
leave the currency on the card for more than a couple of years it may disappear.
Some cards charge you to load them with money. Others charge you for taking cash
out abroad or for using them abroad or over the internet. Some cards charge you
a monthly fee. Others a set up fee when you first get the card.
If you pick carefully you can avoid most – but never all – of these
charges. Of course, you have to weigh them against the 3% charge that most debit
and credit cards make when you use them abroad (but not Saga Platinum, Post
Office, or Abbey Zero) and the extra charges for taking out cash. It’s a tricky
calculation. A friend of mine buys his foreign currency in advance and keeps a
wodge of it strapped to his body whilehe is away. I can see his point.
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