What is a Prepaid Card and What is the Best One?
Understanding what a prepaid card is is an important step in understanding your finances. Many people of all ages have a prepaid card and yet there are many that do not realize the inner workings of the card they have. In this article, we will explain to you exactly what a prepaid card is, how best to use it and which one is the best- and all without the complex jargon. Just sit back and relax and let Frugalalot take you through yet more financial confusion.
What is a Prepaid Card?
A prepaid card is not quite as it may sound. For those of you wondering, a prepaid card sounds like a card that only functions to hold money and that is it. However, they are much more than that and a prepaid card is essentially a debit card. Once again, for those wondering where they have heard that before, the two main types of bank card are debit and credit card. The main difference between the two is that a credit card is one where you buy things on credit to pay it back later, and a debit card is one where you pay for things on the spot- although, you can find debit cards that will offer an overdraft which works in a similar way to credit.
Another feature that is different between the two cards is that some debit cards will carry interest. Interest is measured in a percentage and is something that the bank will actually pay to you monthly, quarterly, etc. Credit cards will feature interest, except the interest will be on the credit that you have on the card.
So, to be clear, a prepaid card is more often called a debit card. This debit card will make you pay for things directly and money will need to be added to the card before you can buy anything. Some debit cards will have interest, although it will not be anything major, and some debit cards will have an overdraught- something akin to the system used on a credit card.
How to Use it to Your Advantage?
Making the most of your debit card is important and this is how you can do it best. Below we will include a few dos and don’ts on debit cards to help you on your way.
- Do use your debit card for medium to larger purchases. This is because, although it will make a dent in your bank balance, buying these on credit will be hard to pay off and the amount that you pay overall will be more than paying it straight up.
- Do make use of your overdraft if you have to. The overdraft is a feature and so you should definitely make use of it if you need a bit of help. Just make sure that you pay it off as quick as possible- this may include budgeting for that, something that you can also learn about with Frugalalot.
- Do apply for one as soon as you can. This is simply so you can make use of your debit card as soon as possible. Firstly, you can then make use of the features that are on your debit card- this may be the overdraft, or the small amount of interest that you might get or it could even be the incentive that you get for signing up to the card. Another reason to apply as soon as possible is that often times the application can take some time and so the quicker you start the quicker you will get your card.
- Do not use your card as a savings card. I know that we keep mentioning the interest rate as a feature of a debit card- and it is. However, the interest rate that you get with such debit cards are often very little. This means that your debit card does not make for an effective savings account- any money that you do intend on saving you should move to a separate account.
- Do not abuse your overdraft. Do not think of your overdraft as some kind of free money, you will have to pay it back at the end of the month or at the end of the agreed period. Some debit cards will have more generous overdrafts so you will need to be careful when you spend.
- Do not get drawn in by fancy offers and pretty marketing. Often times banks and building societies will attach free things to their debit cards so that you will be enticed into getting it. However, often times the cards that come with the most add ons come like that for a reason. Make sure that the card you are getting is what you want and is the best one for you rather than the one that came with the most add ons.
What Are the Best Cards at the Moment?
Here is a list of some of the best pre-paid cards at the moment- please note that these were accurate at the time of writing.
Here is a card that is best for everyday spending. The Monese Simple pre-paid card is a card that will let you do all the normal things that you will do with your card except without the fees. To apply for the card, you only need to visit their website and if and when they accept you, you will need to pay £4.95 for the safe delivery of your card. Once you have your card, there are no monthly fees to watch out for and you can both top up your card and take money out via an ATM £200/ month without incurring any fees- any more than this per month and you can expect a 2% charge on transactions over £2. When sending money from one card to another or one account to another, the transaction fee is zero- making it a great card to use on an everyday basis.
With many students frequenting our page looking for useful advice, we felt it was best to include this section in the article.
The current best student pre-paid card is the Santander 123 Student Account. Because it is a student account, there are many features that will not be present on other accounts. Features such as a 0% overdraft- one that does not grow with interest, something that you can take advantage of up to £2,000. There is also a very nice incentive, with Santander getting you a free 4-year railcard and also offering up to 1% in-credit interest. When compared to similar student accounts run by different providers, this is by far the most generous of any account with most offering a gift card at best or nothing at all. And to cap it all off, it has a student score of 89.4%- the best of the lot.
For those who love to travel, this one is for you.
Starling Bank do a very highly rated pre-paid card that is perfect for your holidays. If you wish to transfer money between accounts, there is no fee. If you wish to purchase something with the card, there is no fee. There is even no fee if you wish to get some cash out. This is the perfect travellers card. Overall, it has an 83% Which customer score and is the only option that does not charge some kind of fee for the service.
Here are a few common questions that we are asked about pre-paid cards, we hope that you find them useful.
Can I apply online?
Because of the modern world, the vast majority of banking can be done online. Therefore, most banks and building societies will allow you to apply online- although, you should note that you can go to a branch and open one and if you do apply online you may need to send in additional documents.
When should I get one?
As soon as you have some money that you can place into an account, you should definitely look into getting one. It means you can make use of the features that will come with the card and it also gives you somewhere safe to store your money.
How much of my overdraft should I use?
Firstly, what you will need to do is to find out how big your overdraft is and whether there is any interest on it. If there is interest on the overdraft, then you may want to use less of it because you will just end up paying more in the long run. However, if you have a student account that comes with 0% overdraft, like the Santander one we mentioned above, then you may want to use more of your overdraft.