Fed up with the cost and hassle of using traveller’s cheques, most business travellers long ago gave them up in favour of the convenience of cards and cash. But promoters of a new product claim to offer the security of a traveller’s cheque with the ease of use of a payment card. What’s more, it can save travellers time and money: no more foreign exchange withdrawal fees or fiddling about with expenses claims. So what exactly is a prepaid card, how does it work, and is it worth it?
The typical prepaid card can be repeatedly topped up with cash, but as it’s not linked to a bank account, personal details are not at risk if it’s lost or stolen. And because it comes with a Visa, MasterCard or Maestro badge, you can use it in almost any store, or at any ATM anywhere in the world so long as you have enough cash loaded on to the card. Prepaid cards are also easy to top up – in the UK you can pay at a local bank branch, or at a shop or garage that has a Pay Point, while when abroad you can pay online, over the phone or with a bank transfer.
American Express launched the first prepaid card available in the UK in early 2005, the Travellers Cheque card and since then, a large number of companies have started issuing them: Barclays, Caxton FX, lastminute.com, the Post Office, Travelex and Virgin all offer a prepaid card. They’re being used by both business and leisure travellers as an alternative to traditional forms of payment, say the companies involved.
“Our prepaid card has proved really popular with travellers, from holidaymakers to business people. You can just keep it in your wallet and you don’t need to carry ID around to use it,” said a spokesperson for the Post Office. However, some issuers have seen a less positive response – Western Union stopped producing its prepaid Maestro card because “there wasn’t much demand for it”.
Take-up has been strongest in the corporate market, where they provide a low-risk alternative to company credit cards for expenses at home and abroad, and a way of capping employee spend. And there are other occasions when firms find it handy to be able to hand out cash in the card form – the Travelex Corporate Cash Passport is being used by some airlines to compensate passengers for lost baggage, or if they have been bumped off flights.
For the individual business traveller, security may be attractive, but costs and fees will probably be the decisive factor. Whether it is worth using a prepaid card instead of a debit or credit card will depend on the costs of each. Most people are used to being charged for using their bankcard abroad, which soon adds up, but if you are not careful you might find your prepaid card is subject to an issue fee, monthly fees and reload fees, as well as transaction fees and currency conversion costs. However, in many cases, prepaid cards come out best.
You could save £20 on £500 of expenses, for example, by using the Caxton FX prepaid card instead of a NatWest debit card. If you use the NatWest card to make five £100 purchases in France, it will cost you £13.75 in currency conversion fees, plus £6.25 in purchase fees. The same transaction using the Caxton prepaid card won’t cost you anything except on the original exchange rate you received when you topped the card up with euros.
Withdrawing money with the prepaid card saves nearly £18. Using a NatWest card to make five £100 withdrawals from an ATM in France will cost £24.75 in fees (2.75 per cent currency conversion fee and 2.2 per cent – min £2, max £5 – foreign transaction fee), whereas with the Caxton FX card it will cost approximately £7.
Prepaid cards are generally available in sterling, dollars or euros and you can use them in any country, but to avoid paying currency conversion fees you should use them in countries in which the currency corresponds to that on your card. “The most economical way of using the Caxton FX prepaid card is in countries which use euros, otherwise you will be hit with a double exchange rate,” said a spokesperson.
This is because if you buy a euro card with pounds, you will get one exchange rate. But if you then use the euro card to buy something in dollars, you will be charged again for converting euros into dollars.
If you use a sterling card abroad, instead of being charged conversion fees, some companies charge additional foreign transaction fees, which can dramatically increase how much you are spending. For example, a Cashplus Gold MasterCard (only available in sterling) will cost you £9.95 in issue fees and £4.95 in monthly fees. So if you buy this card, credit it with £500, and make five withdrawals of £100 while abroad in the same month, it will cost you an extra £43.65, because there is a £3.00 plus 2.75 per cent foreign transaction fee on each ATM withdrawal.
Some companies charge for every reload, but others allow you to top up for free online (Caxton FX MasterCard) or over the phone (Travelex Cash Passport or the Post Office Travel Money Card). There are also huge disparities in the maximum load possible – you can put up to £5,000 on the Cashplus Gold MasterCard but only £1,500 on the N&N Just Cash Maestro card.
Choosing the right card can tricky. The overall best value prepaid card is probably the deal from Caxton FX. It doesn’t cost anything to buy, the exchange rate is competitive, there are no retail fees and if you top up the card online using your debit card it is free. If you choose to withdraw cash, it will cost €2 per transaction in both the UK and abroad, so although it is cheaper than other cards, it is still best to use it for purchases alone. The only potential disadvantage for customers might be that each minimum top-up is £500. But it is because the minimum reload is more than its competitors that Caxton can afford not to charge customers the fees that other companies do, as it makes its money on exchanging large sums instead.
The Travelex Corporate Cash Passport, which was launched at the beginning of the year, is aimed at business travellers and their employers. Companies can supply their employees with a preloaded Visa Electron card which can then be used to cover expenses overseas. It doesn’t come with the individual’s name on, so employers can keep a stack of cards in stock and issue them on demand. Once it has been credited with funds online it will work like a regular bank card – it can be used to make purchases in hotels, restaurants, shops and online, or withdraw cash. Unlike most payment cards, which have chip and PIN these days, it is only signature protected, but this is still accepted in most of Europe and further afield.
If the card is lost or stolen you can call Travelex, which will cancel the card, issue you with another one, and in an emergency “arrange funds to reach you within 24 hours”. Most companies will send you another card if you lose it with the remaining balance credited to it, but some, like Virgin, will charge you for it. “Customers can also be issued with a spare card which they can leave at their hotel or office, so that if they do lose their original card, they can phone the Travelex call centre who will then activate the spare card and transfer the funds onto it,” says Steve O’Donovan, regional divisional director of Travelex.
For most people, especially frequent flyers, convenience is paramount, but this tends to come at a cost. With the arrival of some prepaid cards, travellers can save money as well as time, because they are not paying extra for last-minute currency procurement or incurring high fees for using credit or debit cards. But prepaid cards aren’t good for everything. Arriving at your destination only to find that the ATMs are out of order and you’re short the taxi fare into town is not a pleasant prospect, so there will always be a place for cash.
“Think about a mixed-purse approach. Complement your corporate credit card or prepaid card with pre-ordered cash that you collect from the airport,” says O’Donovan.
But if you want to make big savings on travelling expenses, not to mention saving yourself time and hassle, perhaps it’s wise to take a look at what’s in your wallet.
