Prepaid travel cards

Money on prepaid cards is classed as 'electronic money', and all prepaid card providers are required to hold your cash in a bank account ringfenced from their own operating cash.

So, provided the prepaid card company has followed the rules, if it were to go bust, the bank or building society where your money's held will still retain your cash and you'll be able to get it back.

The slight risk comes if the bank or building society goes bust, because your cash is NOT protected in this case. Always try and find out which bank the provider uses for its ringfenced accounts, so you can then understand the risk. For example, the accounts in this guide use Barclays, so it's arguably less risky than, say, a bank you've never heard of.

Either way, think of your prepaid travel card as one that you'll keep cash on for immediate or short-term spending requirements, rather than as a place to store heaps of it for long periods of time.

As long as you contact the provider of your prepaid card and get it blocked, you shouldn't lose out on any money, though you may have to pay up to £10 for a replacement card.

Pay special attention if your prepaid card is contactless as it could be used for a series of small, fraudulent transactions, so always alert your card provider as soon as possible. It's also worth alerting local police or security services if there's been a theft – you may need an incident number to claim losses back on your travel insurance.

Prepaid cards have more fees than credit or debit cards. We take all these into consideration when picking our best buys, deliberately picking cards with low – or no – fees, but these are the charges you need to watch out for with bog-standard prepaid cards:

• Application and replacement fees. Some cards cost £5 to £10 to open and display that fee prominently on their websites. However, many also charge a sneaky 'replacement fee', and set the expiry date to one year after opening. After 12 months, you'll have to pay around £5 to keep using the card and any funds already on it.
  

  A few cards also charge a monthly fee of a few quid simply for holding it, which works out hideously expensive.

• Transaction fees. Some cards charge you for retail purchases (just buying something in a shop), or withdrawing money from an ATM. Both fees usually jump when you're abroad.
  

  Spending. Charged as either a percentage of the amount or a flat fee per transaction. If you make a high number of small purchases, go for a percentage fee. If you make fewer and higher-value purchases, go for a set fee.
  

  Withdrawing cash. Usually £1.50 to £2.50 per withdrawal. It's also worth checking the cards for loading and transaction limits. If you're likely to want to withdraw lots of cash, it's no good picking a card with a £50 or £100 per day limit for cash withdrawals.

• Inactivity charges. Prepaid providers want you to regularly use the card, racking up charges and boosting their profit. Therefore, you're often penalised if the card goes unused, typically £2/month if you haven't used the card in 12 months.
  

  So use it frequently enough on small transactions to avoid this charge. Similarly, don't overload funds on to the card; most charge a fee to refund the money.

• Charges for topping up your prepaid card with a credit card. There's a hidden charge you could fall foul of if you're using a credit card to pay for and to top up your prepaid card.
  

  Buying currency on a prepaid card is counted as a cash withdrawal, so you could face a myriad of fees, including cash withdrawal fees, interest, or even a fee for using a credit card charged by the money changer.
  

  Therefore, if you're buying and topping up currency on a prepaid card, ALWAYS use a debit card, which isn't allowed to charge this fee.

Whether its euros, US Dollars, Australian Dollars, UAE dirham, Swiss Francs, Turkish Lira, or even Czech Koruna, prepaid travel cards will typically let you load most of the more popular global currencies. The number of currencies you can pre-load on our current top pick cards ranges from 13 to more than 50.

So depending on where you're travelling to (or might want to travel to in future), it's a good idea to check the individual cards before you apply – especially if you're heading somewhere with a less commonly used currency.

If you can't find a card that lets you hold the currency you want, it may be that you'll need to load the card with pounds, and let the card do the currency conversion when you spend. Though, here, you can't control the rate you're getting, you get the rate on the day (or the day after) you spend.

When travelling, it's pretty common for a cash machine or retailer to ask if you want to be charged in pounds instead of the local currency. This is called dynamic currency conversion. In general, you should usually opt to be charged in the local currency rather than pounds, as exchange rates can often be appalling.

When we selected our top picks for this guide, part of our criteria was that they should have top exchange rates and minimal fees. So, with any card from this guide, always opt to pay in the local currency.

Even if you're using a normal card, as you've no idea of the relative exchange rates, it's usually best to stick with paying in the foreign currency. For a great example of this, read Martin's blog.

While these cards say they're accepted anywhere you see the Mastercard or Visa symbol, there are some notable exceptions. Most car hire places won't accept prepaid cards, or if they do, they're likely to also require a credit card for any excess deposit authorisation, so make sure you have back-up cards.

We've also heard from MoneySavers that prepaid cards aren't accepted at many petrol stations or motorway toll booths. Please let us know in the Prepaid Travel Cards forum if you've had a prepaid card declined in other places.

Usually, yes – but not always. Many UK debit cards charge a foreign exchange fee of around 3% plus extra for overseas withdrawals. Prepaid travel cards often beat this, especially if you load currency in advance at a good rate. But top specialist travel credit/debit cards can still work out cheaper overall, as they give near-perfect exchange rates with no fees.

Typically, no. Car hire firms and some hotels require a credit card deposit, not a prepaid or debit card. Even if they accept a prepaid card, they may block a large sum, tying up your holiday cash. Always have a backup credit card for these situations.

You can usually top up via the provider’s app or online, but it may take time to clear depending on how you fund it (eg, bank transfer vs debit card). Some providers also charge extra fees if you load small amounts too often. Always check top-up methods and limits before you travel.

Prepaid travel cards are classed as ‘e-money’, so your funds should be ring-fenced in a separate bank account. That means they’re safe if the provider itself collapses – but not if the underlying bank holding the funds goes under. Unlike bank accounts, balances aren’t FSCS protected, so don’t load huge sums you won’t need on holiday.

Always choose local currency. If you pick pounds, the retailer does a “dynamic currency conversion” at a poor exchange rate, often adding 5%–10% to your bill. Choosing local currency means your prepaid card provider does the conversion, usually at a much better rate.