Popularity of prepaid cards soars - should you get one?

The cost-of-living crisis has driven a 118% rise in prepaid card use across the UK, it has been claimed.

One in five Brits (11.4 million) are now using the payment method, according to the prepaid card provider Recharge.

What is a prepaid card?

You load money onto a prepaid card to stop yourself overspending. Different cards come with different balance limits. You can’t exceed the balance limit of your card when you top it up.

What’s the point of prepaid cards?

Prepaid cards are designed to help you budget, as you can only spend the amount you’ve added to them.

Other benefits include:

• There are no credit checks as you can’t build up debt on a prepaid card.
• You can get specific prepaid cards to help you manage your holiday spend that can be loaded up with the currency of your choice.
• You can block prepaid cards if they’re lost or stolen.

So getting a prepaid card is a win-win then?

Well no, not necessarily. There are a couple of things you need to bear in mind:

• Unlike with credit cards, you’re not protected if you buy something for more than £100 and there’s a problem.
• There may be an upfront fee for a prepaid card and you may also be charged a regular monthly fee, along with further fees for each transaction and withdrawals from cash machines.

Are prepaid cards safe?

Prepaid cards are regulated by the Financial Conduct Authority but they’re not covered by the Financial Services Compensation Scheme, so if your prepaid card provider goes bust you could lose any money loaded onto your card.

Prepaid cards that help your credit rating

There are some prepaid credit cards specifically designed to help you improve your credit rating. These are likely to charge a fee but making regular, timely payments could boost your credit score. Make sure you stick to the terms and conditions to avoid damaging your credit rating further instead of improving it.

Who are prepaid cards popular with?

The stats provided by Recharge show:

• men are more likely to use prepaid cards than women (26% vs 17%)
• they’re most popular in London, with 61% of people in the capital using them
• over half (56%) of users are aged 18 – 34
• 26% of users got a prepaid card to help them avoid debt
• 34% of users got a prepaid card to help them budget

Fundamental shift in spending habits

The CEO of Recharge, Gunther Vogelpoel, puts the growing popularity of prepaid cards down to the economic climate in the UK. He said:

“The cost-of-living crisis has fundamentally altered spending habits, driving many Brits to seek alternative ways to ensure they are in control of their finances.”