We all understand Debit Cards - they are similar to Credit Cards but no offer no credit. Instead, money spent is debited directly from our bank accounts in real-time.

A Prepaid card is similar but it is not linked to a bank account. Money has to be preloaded on to the Card and when this is used up the card is effectively useless - until it's reloaded with more money.

Each card comes with it's own PIN (Personal Identification Number) and this is used to pay for goods via a Chip & Pin terminal or to get cash out from an ATM.

In many ways a prepaid card is similar to a Pay-as-you-Go mobile phone. The phone is loaded up with credit and will work until that's used up, or more is added.

If a payment is made either in Cash or via a Debit Card the amount is usually loaded on to the Card within 30 minutes.

• Safety when travelling abroad - No need to carry as much cash plus less chance of fraud
  
  
• Impossible to overspend and get into debt - Load £200 on to the Card and you cannot spend £201
  
  
• No credit check - everyone is accepted - Useful if your Credit rating is damaged and you're struggling to get a traditional Credit card. See also - How to repaid a bad credit rating
  
  
• Better than Travellers Cheques - Travellers cheques are old school and often easy to steal. Also, if you have the right prepaid card for spending abroad it will probably work out cheaper than taking travellers cheques (see Buying Tactics further down this page)
  
  
• Increased security when shopping online - Many people are concerned about buying goods and services over the internet with a Credit or Debit Card. If so, use a prepaid card - it will be more expensive though
  
  
• Manage your spending online - Most Prepaid Cards come with internet access so you can keep track of your spending
  
  
• Transfer money abroad - Useful if you have a relative or son/daughter abroad, perhaps on a Gap year. Cash can easily be transferred to them and almost instantaneously
  
  
• Gold Card status - Some Prepaid Cards look just Gold Credit Cards. Useful if you need to show off
  
  
• Prepaid Gift Cards - These work in a similar fashion to a gift card but have hard cash loaded on to them. Give them to someone heading off on holiday. Note, you don't have to prove your ID when buying a one of these but they cannot then be reloaded with new cash
  
  
• Bill paying - Prepaid cards act like Debit cards so they can be used to pay bills, online or on the telephone
  
  
• Cheaper than Western Union - Many people send money from the UK to relatives or friends abroad using Western Union, but it's not cheap. The right prepaid card will probably work out cheaper - but the person who's receiving the cash will need to be in possession of the card
  
  
• Wages can be paid in - Some people don't have bank accounts, or if they do they don't want their wages paid in - If so, organise for the money to be deposited on to your prepaid card

• High Fees - By far the main negative. The list of potential fees (listed higher up this page) can really add up to make these cards incredibly expensive to use
  
  
• Limited or no Purchase protection - Credit Cards offer strong financial protection when buying goods/services - any problems and you are refunded. Prepaid cards offer little or no protection. More information on Credit Card protection
  
  
• Expiry date - Prepaid cards expire after 1 - 3 years. Many card providers won't reimburse money that's still left on an expired Card
  
  
• No interest - If you keep a cash balance on the Card no interest is payable
  
  
• Possibly promotes spending on plastic - Many of these Cards are aimed at the under 18s. Some debt charities have expressed concern that youngsters, if they use them extensively, might develop unhealthy attitudes to using plastic

For example, John might want to use a prepaid card when on holiday. If so he should obviously look for the card that's most competitive when used outside the country.

But Julie is worried about online security and has no interest on using her card when aboard. She needs to find the one that is the cheapest to run and use here in the UK.

Tip - Try to steer clear of cards that levy a monthly management fee. These look exceptionally bad value.

Prepaid cards have their role and might be useful for certain people. But they're expensive to fund and use.

However, if one is right for your circumstances always go for the cheapest Card to run. That will take a small amount of research but it will save you money.

See also

• Why we like and use these 3 Credit Cards