How do prepaid currency cards work?

Feeling a bit flummoxed by prepaid currency cards and how they can be useful?

Here we’ve set out to explain in simple terms exactly what they are, how to use them, and how to decide whether they’re the best option for you.

What is a prepaid currency card?

Put simply, it’s a card you load up with a particular currency to use later in another country.

Are there different types?

Yes. Some cards are used solely for one currency, most commonly the euro or the US dollar, while others can be loaded with several different currencies from a set list. Yet more can be loaded with sterling for use in countries for which there is no dedicated card – more about those later…

Every card features different rates and rules, so it’s important to compare all the options and read the small print before making your choice – some of the most popular cards are linked to below.

How do prepaid currency cards work?

After signing up with the company of your choice, you are issued a card (usually underwritten by Visa or MasterCard) and a personal pin number.

Before you go abroad, you transfer pounds from your debit/credit card or bank account to your prepaid currency card at a particular exchange rate. You can then use the card abroad (in countries that use the currency you have exchanged to) in the same way that you would use a regular debit card in the UK.

When you use your card abroad, that amount is “unloaded” from it. If you need to add more of that currency, you can load it up – this can be done by phone or text, but is usually done online or via a dedicated app. You can’t spend what isn’t on the card, so you can’t go into debt on it.

After your trip you can keep any unused funds for the next time you travel – some cards also allow you to exchange leftover foreign currency back into pounds.

Fees and conditions vary, so you should check to see if you would be charged for:

Signing up
Loading currency
Using your card to purchase an item or service
Withdrawing cash
Transferring your balance onto a replacement card
Inactivity
Closing your account

‘Sterling’ cards

Also available are ‘sterling’ prepaid currency cards, which you can use in countries where a dedicated card for that currency is not offered. For example, if you were to travel to Namibia, where they use the Namibian dollar, there is no card which you can load with this specific currency.

In this instance you would load your sterling card with pounds which you could then use in Namibia – your sterling balance would be automatically converted to the Namibian dollar when you paid for anything or withdrew cash.

Do prepaid cards offer better exchange rates?

They often do, but not always. They will almost certainly offer better rates than airport exchanges and travellers’ cheques, but you may get a better deal by using one of the better credit cards for use overseas. Some cards offer better rates the earlier you make the exchange.

Which companies offer them?

You can compare some of the most popular cards on offer to work out which is best for you:

More options are also available, so make sure you do your research

What are the benefits?

It’s safer – you don’t have to carry large amounts of cash on you, or deal with travellers’ cheques.
You avoid the often-hefty fees that can result from using your debit or credit card abroad.
By loading your card in advance you can often take advantage of better exchange rates – for instance, if you loaded a card with euros before the EU referendum result, you would have more euros to your pounds than if you exchanged the day after the result.
There are usually no transaction fees (but check!).
They are widely accepted overseas.
You cannot run up a debt.
If your card is lost or stolen you can have it blocked immediately and get a replacement card with any unused funds transferred for free or a fee.
Some companies allow you and your family/friends to link cards together to share money among the whole group.
It’s easier to stick to a budget if you have a pre-determined amount of currency on your card.
Some offer cashback on your spending.

And the downsides?

If you decide to top up too late, you may not get a better deal than you would by exchanging currency in the normal way, and you may find a better exchange rate regardless.
If you use a card issued in one currency in a country that uses a different currency, you may be charged further fees.
Most cards charge a fee to withdraw funds from ATMs.
Small-print charges can often wipe out any savings you’re expecting – inspect them carefully!
You cannot use a prepaid currency card to pay a deposit, as it will block those funds on the card.
Prepaid currency cards are not protected by the Financial Services Compensation Scheme, which can compensate customers if a firm has stopped trading or does not have enough assets to pay claims made against it.

Ultimately the best way to decide if prepaid cards are right for you is to sign up with one and try it out while you’re on holiday – if it’s not for you, then you can cancel it or never use it again.