6 prepaid credit card fees to watch out for

By UK CreditCards.com

Prepaid cards can be a great alternative to standard credit or debit cards. They're flexibile and secure, and they can help you stick to a budget.

However, many prepaid cards also come loaded with fees than can catch you off guard. Here are six of the most common prepaid card fees to watch out for.


1. Set-Up Fee
This fee is also known as an activation fee, a card application fee or a card issue fee. It's a one-off charge to consumers when they initially take out the card.

Set-up fees can range from a couple of quid right up to £9.95 if you opt for a Virgin Money card. The Escape Prepaid MasterCard also has a set-up fee of £9.99, but if users load the card with £100 in the first 90 days, they will get a £6.50 refund. Some prepaid cards, including Card One Banking, do not charge a set-up fee.

If you order the card in-branch or over the telephone, there should be a representative to speak with you about the charge.

2. Monthly Fee
Some prepaid card providers will claim to be upfront and honest with customers by charging one simple and easy to understand monthly fee, rather than several smaller fees every time you use the card. However, other providers may just use this as an excuse to squeeze some extra cash out of unwitting consumers. Be proactive when comparing prepaid cards and ask a representative to explain what's covered by the monthly fee.

Monthly fees are payable every month and will usually be deducted from the balance on the prepaid card. This means that users need to ensure that the card is loaded with enough money to cover the fee each month.

The monthly cost of prepaid cards currently available on the market ranges from free up to £12.50 with Card One Banking. Take care when comparing cards advertising no monthly fees as they could be making up the cost elsewhere.

3. ATM Withdrawal Fee
This prepaid card fee is one of the worst fees for consumers who are not aware of it.

The cost of these fees can range from 75p to £1.75, or up to 2.95% of the withdrawal value. However, if you are using the card abroad, the price will increase even further -- up to the value of £3.00 for some.

To avoid ATM withdrawal fees, try to use the card for purchases only and transfer the money to a current account to withdraw cash.

4. Transaction Fee
The majority of prepaid cards do not charge cardholders for making purchases or transactions with the card in the UK, but some do. When the card is being used overseas, there is almost always a transaction charge, and this is usually between 2% and 3% of the purchase value.

To avoid ATM withdrawal fees, try to use the card for purchases only and transfer the money to a current account to withdraw cash.      

If the prepaid card has a monthly fee, it is unlikely that users will be charged an additional transaction fee. Transaction fees are usually either around 50p per transaction or 2 to 3% of the transaction cost.

5. Reload Fee
A reload fee may also be called a top-up fee. This is a charge applied for reloading the card with funds. There are often many ways to reload a prepaid card. It can usually be done online, with wages, in post offices or at PayPoints, over the telephone and sometimes in-branch.

The cost of this fee can vary considerably, depending on the card. The majority of prepaid cards are free to reload. However, others will charge a fee depending on which method cardholders use to top up. Topping up at a PayPoint or with a credit card are usually the most expensive options and can cost up to 2.75% of the reload value.

To avoid incurring this fee, check with your provider about the cheapest way to reload the card.

6. Replacement Card Fee
Replacement cards are not only for the careless who misplace their card, or for those unfortunate enough to have their card stolen. Once your prepaid card expires, you will also need a replacement card.

Nearly every single prepaid card provider currently on the market charges customers for additional or replacement cards. This cost is usually around £3 to £5, but is often not displayed in the card provider's tariff or cost tables.

To ensure that you do not miss this additional cost, ask the provider what the charge and process is for obtaining a replacement card.

 See related: Will prepaid cards replace cash and cheques?; Editor's Choice: The best prepaid cards for travel

Published: 28 December 2011