Should you consider a prepaid card for holidays abroad?

A prepaid card for travel abroad might be an alternative worth considering - more specifically, multi-currency prepaid cards. Prepaid cards work in a similar way to a debit card, except you have to pre-loaded the card account with money before using it. A multi-currency prepaid card account works the same way, except there is an additional feature: you can convert what you top up to another currency. Some offer the option to hold several currency options for your use while travelling. Surprisingly, when comparing prepaid currency cards with some traditional banks, the exchange rates and fees offered are also competitive.

So what are all the advantages of using a prepaid card for abroad travel, and what are the risks?

What are the advantages of using a prepaid card for holidays?

• A practical way to budget while you travel
• Easy to use and accepted just about anywhere in the world
• A safe and convenient alternative to cash
• Multiple currencies in one card and competitive exchange rates

What are the disadvantages to using prepaid cards abroad?

What are the alternatives to using a prepaid card for holidays?

What are the advantages of using a prepaid card for holidays?

A practical way to budget while you travel

A prepaid card can be a practical way to limit and track your spending while you travel. It can also help you avoid overdraft charges and paying interest. Prepaid card accounts don't offer an overdraft facility, so there is less chance of spending more than you have, and they are not like credit cards which allow you to spend on credit. Most prepaid card accounts come with a mobile app that can send you notifications of spending, low balance alerts, and more, so it's easier to keep tabs on your spending.

Easy to use and accepted just about anywhere in the world

If your prepaid card is MasterCard or Visa card, it will likely be accepted anywhere in the world that accepts Visa or MasterCard. Visa and MasterCard are the two most extensive processing networks in the world. That means you can use a prepaid travel money card in most shops, restaurants and bars. Plus, you will be able to draw money from just about any cash machine - but be sure to check the ATM withdrawal fees for this.

TIP: When you use your card overseas, you may be asked if you would like to pay in pounds. Selecting pounds will likely mean you are charged a higher exchange rate by the local bank or merchant than the rate charged by your card provider. Choose "pay in the local currency" and not British Pounds, or "without conversion" - this applies to debit cards, credit cards and prepaid cards. For more information as well as other tips on using your card overseas, see: What you need to know when using your card abroad.

You can also top up your prepaid card while abroad, although you'll need an internet connection for most load options. Depending on your provider, top-ups can be done by text, online, mobile app, or via your debit card or credit card. Some may also allow you to transfer funds via Apple or Google Pay or make a bank transfer.

Not all top-up methods will be instant or fast, worth noting especially if you are in a hurry. Be sure to check the load fees, too; some options will be costlier than others. It's also worth considering taking another card or alternative method of getting money, just in case something goes wrong.

A safe and convenient alternative to cash

Using a prepaid card for holidays abroad can offer another level of security and alternative to cash, and even though many are contactless, they are chip and PIN protected for larger transactions. Plus, you will also be able to block or freeze if your card gets lost or stolen via your card providers' mobile app. You can also contact your provider to cancel it and arrange to have a replacement sent to you.

If you have any foreign currency left on your prepaid travel money card when you return to the UK, you can always change it back to Pounds Sterling within your account. You can also wait for a more advantageous exchange rate if you think you can get more for your money in the future, or you can consider changing to another foreign currency for a future trip. Most prepaid travel cards in the UK will allow you to transfer the money back to your bank account, too, taking away the need to find a Bureau de Change, who may charge a less favourable rate and a fee.

Did you know: Following a survey of 8,000 UK travellers, it was reported that "individuals and businesses are being charged nearly £6bn a year" due to hidden currency fees and poor exchange rate offers. Many suppliers failed to reveal "the rate at which they purchase the currency sold to customers". The same survey calculated the "average Brit will pay more than £5,000 in hidden fees over their lifetime."

TIP: Before buying currency, you can check live exchange rates on Google or visit www.xe.com to ensure you are getting a good deal. Exchange rates displayed on shop fronts of bureaux de change may not be current or live rates. Apart from the exchange rates, look out for additional fees or commission charges.

Multiple currencies in one card, exchange rates and fees

Multi-currency prepaid travel cards can hold several currencies within one account. For example, when writing this article, the Wise multi-currency account (also known as TransferWise) can hold 53 currencies. The FairFX currency card can hold 15 currencies on one account. While the Tesco prepaid travel card and the Co-operative prepaid travel card (also known as a Multi-currency Cash Passport) can both hold seven currencies. All of these include British pounds, US dollars and Euros. Several foreign currency options in one place can be handy if you are a frequent traveller or plan to visit several countries.

The exchange rates and commission fees can be competitive, too, particularly when compared to more traditional banks. To give you an approximate idea, on 4 Aug 2021, between 2:25 pm and 2:35 pm, the British pound to Euro exchange rate was 1 GBP to 1.1725 EUR (according to ex.com). That means for £1,000; you would get:

Prepaid travel card
Wise: 1.168.00 EUR
Currensea Essential Plan: 1,166.00 EUR
FairFX: 1.155.00 EUR

As a guide, transferring the same amount into Euros with Barclays Bank would get you 1,139.85 EUR. Or if you use Lloyds Bank, you would get 1,130.45 EUR, which, compared with Wise, is a difference of 37.55 EUR. Or if you use the HSBC Travel Money service, you would get 1,120.20 EUR, significantly less for your money.

Of course, there may be additional fees to consider, such as topping up your multi-currency prepaid card account or using your card at an ATM and monthly fees. More on that, in the next section; the point here is sometimes it's worth shopping around and looking at alternative options, one of which may be a prepaid card for Europe as in this example.

What are the disadvantages to using prepaid cards abroad?

There are disadvantages too, fees, for example, these can include:

• Application and setup fees
• Monthly or annual fees 
• Charges to load money 
• Withdrawing money from cash machines (in the UK and overseas)
• Transactions fees (including foreign transactions)
• Inactivity fees for not using your card
• Replacement card charges

It's also worth noting that some transactions might not be accepted. For example, a Hotel reservation fee or deposit for using a Hotels' mini-bar. Or paying for petrol at self-service petrol stations or pumps. There is no credit facility, so prepaid cards do not fall under the Consumer Credit Act 1974, which can protect your purchases if the retailer goes under or if you don't receive the goods or services you paid for.

Prepaid card accounts usually fall under electronic money (or 'e-money') and are not protected by the FSCS (Financial Services Compensation Scheme). Something worth thinking about, especially if you have large amounts of money on your currency prepaid card. For more information on this, see our guide: Prepaid cards: How safe is your money? 

What are the alternatives to using a prepaid card for holidays? 

The are many alternatives to prepaid currency cards; these can include: 

• Travel credit cards and debit cards
  These are specialist cards specifically made to offer travel benefits, competitive exchange rates, or no fees for using your card abroad. Plus, with travel credit cards, you can still benefit from Section 75 of the Consumer Credit Act 1974, for overseas purchases.
• Digital banks 
  Digital banks or challenger banks like Monzo or Starling might be worth considering. Usually, these offer free transactions and withdrawals abroad and competitive exchange rates while functioning in many ways the same as high street banks. 
• Cash and travellers' cheques

If you are struggling to decide on travel card options, please check our guide: What travel card should you use for your next trip?

In summary

Should you consider a prepaid card for holidays abroad? Yes, as you may find a multi-currency card suited to your travel needs. Many offer flexibility, easy top-up options and competitive exchange rates that could save you money and help you budget. There are disadvantages too, such as the fees that you may be charged for using your card (and sometimes not using your card), there are limitations, especially when compared with travel credit cards. It's worth doing research and shopping around; you can compare prepaid cards for everyday use and travel on MustCompare.co.uk.