Prepaid currency cards can make spending money abroad much easier for some people, but they do have their drawbacks.
Most people carry plastic when they travel abroad these days, as taking fistfuls of cash is too risky and travellers cheques have fallen out of favour.
The simplest thing you can do is pack your debit and credit cards you use in the UK, but this could be more expensive than you think.
Most banks and card issuers slap on hidden charges for foreign transactions and cash withdrawals, which can add up to anything between £3 and £5 for every £100 you spend. This adds up over the course of a holiday, but most holidaymakers don’t realise the danger until they check their statement after they get home – if they bother checking it at all.
There is another way of packing some plastic, known as prepaid currency cards. They offer most of the features of standard cards, including the security of Chip and PIN, but without those overseas charges.
Prepaid cards may be safer, too, in case of theft or fraud. That is because you can only spend money you have previously loaded onto the card, which means that even if the worst happens, the criminals can only access a limited sum.
They may also offer more competitive foreign exchange rates, too.
Prepaid cards are not always your best option, though. Always compare charges when making your choice, some impose fees when you set up your card, load them with currency, or withdraw money from an ATM.
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Whether you are buying sun cream in St Tropez or tapas in Torremolinos, the local vendor is now likely to accept prepaid currency cards.
They are backed by MasterCard and Visa, which means they are accepted in tens of millions of bars, restaurants and shops all over the world, just like debit and credit cards. You can also use them to withdraw cash, or spend online if you wish.
Foreign exchange specialists issue these cards, such as Caxton FX, easyFX, FairFX and ICE, as well is a range of financial services firms, including Post Office Money, Revolut and Virgin.
Typically, you order the card online, which should be delivered within five to seven working days. You load it up via debit card or bank transfer, in the currency of your choice. There may be a typical minimum load of between £50 and £100, and a maximum of around £5,000. Then you are ready to fly.
You can top your card up later, whenever you wish.
Prepaid cards are a safe and practical way of managing your holiday money.
You can only spend money you have previously loaded, which helps you stay within your travel budget.
You cannot use the card to borrow money, in contrast to a credit card, but this means you don’t have to be credit checked to get one.
You can typically monitor your balance and transactions online or through a smartphone app, to check you have enough funds on your card.
You can also get alerts telling you when your funds are running low, and top up by phone, text, online or an app. The funds should be there in minutes.
This makes them a great way for parents to keep tabs teenage children when they are travelling, as you can set a budget, make sure they do not overspend, and replenish their balance if they run low on spending money.
Some providers let you block and unblock your card via the app to prevent unauthorised use in between transactions – giving you protection if you mislay the card. If your card is lost or stolen, you can block it immediately and order a replacement, which should include any unused funds.
Another major benefit is that you can lock into a currency rate when you load the card, which allows you to take advantage of a favourable exchange rate, and protect yourself from adverse movements.
You are guaranteed to get that exchange rate even if you aren’t travelling for several weeks or even months.
If you have money left on your card after a trip, you can leave it there for next time you go away, or transfer them back to your bank account.
When comparing cards, keep a close eye on fees. Some charge set-up fees of around £5 or £10, and may also charge for loading money, ATM withdrawals, or transferring unused funds. Many cards have annual fees as well.
Typically, you load money in the currency of your choice, so check your preferred card offers the currency you need. You may have to pay a foreign exchange fee if you end spending in a different currency.
If you are not careful these charges can add up, and could wipe out the savings compared to using a standard debit or credit card.
Prepaid currency cards are not protected by the government-backed Financial Services Compensation Scheme, which protects up to £85,000 in bank or savings accounts if the provider goes bust.
Nor do you get protection under Section 75 of the Consumer Credit Act, as you do on credit cards. This provides compensation on purchases between £100 and £30,000, say, if the supplier goes bust, or doesn’t respond to your letters or phone calls. However, some cards offer their own purchase protection schemes.
There’s another quirk that could catch you out. You cannot use a prepaid currency card to put down deposit on a hire car, but need a standard credit card for identity purposes.
There are still big advantages to taking a credit card abroad, because unlike prepaid currency cards, you can use them to borrow money.
Look for one of the growing range of credit cards that offer free overseas use, either in Europe or worldwide.
That means no overseas transaction fees or foreign exchange charges when you shop, and no fees on ATM withdrawals (although you pay interest from the day you withdraw the cash).
Travel credit cards have fewer fees than prepaid cards, but charge APRs of around 20%. However, if you clear your balance in full every month, you won’t have to pay a penny.
You should also get the 56-day interest-free period on purchases, as with standard credit cards.
Credit card exchange rates are typically competitive, although you cannot lock into a fixed rate before you travel.
The application process can take slightly longer than on a prepaid card because you are borrowing money, so the issuer has to carry out credit checks. Those with poor credit records could be rejected or get a worse deal.
Another option is to use one of the new breed of app-based banks such as Revolut, which may offer free worldwide use, and competitive spot currency rates.
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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
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Harvey Jones has been a personal finance journalist for more than 30 years, during which time he has written for almost every UK national newspaper, and a host of specialist magazines.
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