Why travel with a prepaid card?

By UK CreditCards.com

Prepaid cards have been a common method of payment around the world for a while now, and they are rapidly gaining in popularity with UK consumers. This boom has led to card issuers adding more prepaid cards to the market, including prepaid cards that are specifically designed for travel.

vacation-charge

Here's why some UK travellers prefer using prepaid travel cards while on holiday: 

More security.
Unlike debit or credit cards, prepaid credit cards are not linked to a bank account or any other personal information. So if your card is lost or stolen abroad, the only thing in jeopardy is the amount of money you preloaded onto the card. This can reduce your risk of identity theft. Some prepaid card issuers will also send you a replacement card for a small fee. 

Cheaper foreign transactions. 
It can be far easier to manage your balance with a free travel prepaid card because they are available in Euro or US Dollar currency as well as UK Pound Sterling. According to consumer group Which?, "the exchange rate is fixed at the time of loading, which can be an advantage if you expect currency rates to fall." You also don't have to worry about foreign currency fees when using a prepaid card. These types of fees can often add up when you use a credit or debit card to make purchases abroad.  

Smaller ATM charges.
A study by Sainsbury's Travel Money established that British tourists are spending more money than necessary by withdrawing cash from foreign ATM machines. Experts are claiming that the £391m spent on these transactions could have been drastically reduced if holidaymakers had used free travel prepaid cards instead.

Although ATM withdrawals usually incur a charge for prepaid cards too, standard debit and credit cards costs are often far higher.

Built-in-budgeting.
It is easy to get carried away with your spending when using credit cards abroad. After all, you can swipe as often as you like until you hit your credit limit. Prepaid cards, in contrast, force you to stop spending once you run out of money. This avoids penalties from the bank for going over your overdraft and unwelcome hefty credit card bills when you get home.

That said, most prepaid travel cards do come with significant fees so make sure you account for those fees in your budget. Depending on the card you choose, there are often small charges associated with withdrawing cash and loading the card. Some cards even require monthly payments, so do your homework before choosing a card.

See related: 5 questions to ask when comparing prepaid debit cards; Study: Overseas ATM withdrawals costly

Published: 5 August 2011