This piece first appeared in the money section of the Saga website on 4 August 2010
The text here may not be identical to the published text

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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