| Frugal is the new flash: Prepaid cards |
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| 21 July 2008 | |
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This year has signalled a clear desire to return to solvency that some say will last for many years to come. Whether or not you will arrive at solvency in this timeframe is another matter but people are certainly trying. In addition to downgrading supermarkets and opting for ‘staycations’ – basically a holiday at home – over expensive trips abroad, people are squirrelling more money away, too. After last Christmas, for example, £719 million was deposited into cash ISAs, according the Building Societies Association – more than double the £302 million deposited in the previous year.
Even if you don’t want to join the new solvency trend, you may find yourself swept away by it anyway. This is because credit card companies are becoming increasingly wary about to whom they issue their plastic. Just last February, 161,000 Egg customers were informed their cards were being cancelled, while more than 18,000 applications are have been down by credit card companies every day for the last six months. In addition, around 1.8m credit card customers have also had their credit limits cut by an average of £1,600 over the past six months.
Perhaps this is where the growing phenomenon known as ‘prepaid cards’ comes into its own. After all, frugal is the new flash. Pros and cons Many of us have already used a prepaid card at one time or another, whether it’s for a phone, electricity or even a prepaid gift card that you can present to the selected retailer. The prepaid card works in the same way, in that you load money on to the card in advance from what’s available in your current account and go out and spend on it later. While this process is totally different from a credit card, in that you spend what you already have rather than what you are borrowing, prepaid cards have some of the same uses as their flexible credit cousins – for example, as they are Visa or MasterCard, you can use them anywhere in the world as well as purchase goods online.
• Other charges: Before choosing which prepaid card to opt for, you should also investigate account termination fees if you want to leave the arrangement; card replacement fess if you lose your prepaid card or it is stolen or damaged; and potential card renewal fees when, just like a debit card, your prepaid card reaches its expiry date. Bear in mind that some firms also charge a small sum for ‘card inactivity’. Conversely, costs to the retailer when you use the card are minimal. This is because merchant fees are in line with those charged for debit card transactions and there’s no need to adapt the IT infrastructure already set up to accept prepaid cards. More competition is likely to enter the growing prepaid market, however, which should hopefully ease this disparity and deliver better value to the consumer. Security Although they don’t offer the same perks as credit cards, such as built-in travel insurance and cover for goods bought on the card, prepaid cards are still equally – or even more – secure than debit cards. For example, if they are stolen, the card can be blocked or cancelled once the theft is reported, which you must do as soon as you discover it. But, just like a debit card, it cannot be used without your PIN number anyway. And if a thief gets past that point, he may subsequently be disappointed to discover that he can only ever spend what you have loaded on to the card and no more. Some card providers, though not all, will refund money taken from your card in the unlikely event that criminals do manage to use it. Prepaid cards are also good for making purchases online, as there is no trail back to your bank account which, if tampered with, is a lot more stressful in the long run. Users Independent experts predict that spending on prepaid cards in Europe will reach £120bn by 2010, as the credit crunch has prompted people to start living within their means again – and this is a phenomonen that applies to everyone. But prepaid cards are good for more specific consumer sectors, too. They are a very inclusive form of payment, as many are open to people who are under 18 years old, have had credit problems in the past or who have difficulty getting accepted for a standard credit card or bank account. Consumers also generally still prefer using plastic to cash and can monitor what they spend with more certainty. Extras You can make regular payments from your card, just like with a bank account. Other people can load money on your card if they have your name, card number and bank details. This is why the cards are so useful for parents wanting to keep their children with a controlled income – not discounting husbands and wives, too. Tag this article :     |
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