A Guide to Prepaid Cards

A Guide to Prepaid Cards

by David Redmond on 9 Aug, 2012

If you’re a parent, you’ve probably experienced your child pestering you to do a spot of online shopping on their behalf. If your pride and joy has hit their hyper-social teenage years, it’s likely you’ve also fretted about them going out and becoming stranded after running out of cash. The worry increases if your child goes away to university, where debt is the main concern. Similarly, adults who eventually fall into debt and the burden of bad credit will find it difficult to obtain credit cards to use. But there is an increasingly popular solution: the prepaid card.

What is a prepaid card?

As the name suggests, prepaid cards are a form of plastic that you top up with cash in advance before you spend. Rather than being linked to a particular bank account, each prepaid card is linked to its own individual account which can be loaded with money in a variety of ways, including at a post office, through a simple bank transfer, or online as the Secure Trust Bank prepaid card allows. Once you have funds available in your prepaid account, you can use your card online and in shops and restaurants as you would a conventional debit or credit card.

Who are they for?

Prepaid cards are ideal for two main groups:

• Students – University brings with it some degree of financial independency, which often leads to overspending and sinking further into debt. Prepaid cards allow the user to not only shop online but also have immediate access to cash without having to carry around pocketfuls of coins. This provides added security for the cardholder and peace of mind for their parents – who can also top up their child’s prepaid account at any time.
• Adults with bad credit history – since with prepaid you can’t spend money you don’t have, consumers don’t have to match up to card providers’ lending criteria – there is no lending involved – enabling those who normally fall foul of such criteria to take advantage of the convenience of having a card.

What are the benefits?

As well as opening up the playing field for consumers who aren’t usually able to benefit from plastic, prepaid accounts offer a number of other plus points:

• Travel – prepaid cards tend to offer much lower transaction fees than debit card when used abroad, while some prepaid accounts can be topped up with foreign currency, saving on exchange rates. On top of this, there’s the added security of not have to take a large wad of cash on holiday.
• Money management – since you can only spend money you’ve pre-loaded onto your card, you’ll never be spending money that isn’t yours, so you’ll never get into debt with your card provider.
• International transfers – prepaid cards are an economic way of sending money overseas. Rates tend to be cheaper than other methods, so if you need to make a payment to foreign-based family or help out your cash-strapped daughter on her gap year, you won’t have to pay through the nose to do so.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.