Prepaid cards VS Debit cards - What’s best?
Prepaid cards are similar to bank debit cards, and that's why some people refer to prepaid cards as "prepaid debit cards". But did you notice we said bank debit cards? That's because regular debit cards are linked directly to bank accounts, meaning when you use your debit card to pay for something, you are spending the money in your bank account.
On the other hand, prepaid cards are not linked to your bank account. That's why you have to preload money to your prepaid account. Once you have used up your card balance, you have to top it up again to use it. There's no going into an overdraft.
However, the differences between debit and prepaid cards don't just end there. The level of protection, acceptance, costs and the application process also differs.
Which is safer?
Both debit and prepaid cards are PIN protected. Additionally, both types of cards will follow new security measures, which came into effect on 14 March, designed to reduce fraudulent transactions. These new measures require you to verify or confirm it is you making a transaction to re-duce online scams and add another level of protection. You may have already started noticing these changes with your current card transactions. Pre-authorised security measures affect:
- Online transactions
You will have to enter a code that is usually sent to your mobile to complete a purchase, and only once the code is entered correctly can the purchase be authorised.
- In-store purchases
If you have a contactless prepaid or debit card, you will likely be required to enter your PIN at checkout more often.
If your prepaid or debit card is lost or stolen you should be able your block your card on your mobile app or by logging in to your online account. Otherwise, you can contact the card provider directly to block your current card and replace it with a new one (prepaid card providers may charge you for a replacement card). You should do this as soon as you become aware your card is missing.
Both prepaid and debit card transactions are not covered by Section 75 of the Consumer Credit Act 1974. Section 75 does apply to credit cards. However, chargebacks on debit cards, prepaid cards and even credit card transactions are possible. It all depends on your card provider. They are not legally required to provide this service to you, whereas Section 75 is a legal requirement.
A chargeback occurs when your bank or card provider reclaims money from a retailer's bank on your behalf. It is similar to a transaction reversal for a payment you have disputed. A chargeback can apply to goods that are damaged, not sold as described, or haven't been delivered. But, there are no guarantees you will get your money back, and you may find it easier first to try to resolve the matter with the seller or merchant.
One final important point in this section, when it comes to holding more significant amounts of money, you may prefer to use a UK authorised bank account protected by the Financial Services Compensation Scheme (FSCS). The FSCS compensates you up to £85,000 (or up to £170,000 for joint accounts) if your bank, building society or credit union fails.
The FSCS does not cover e-money accounts (including prepaid cards) and payment providers. We talk more about this topic in our guide "Prepaid cards: How safe is your money?".
| Security and protection: | Debit bank cards | Prepaid cards |
| PIN security | Yes | Yes |
| Online security | Yes | Yes |
| Section 75 protection | No | No |
| Chargebacks | Yes* | Yes* |
| FSCS cover | Yes** | No |
| * Depending on your card provider | ||
| ** Generally UK authorised banks, building societies or credit unions are covered by the FSCS. To check your funds are covered, check the FSCS Bank & savings protection checker | ||
Which is more widely accepted?
UK prepaid cards and debit cards are either issued by MasterCard or Visa. So they can be used anywhere that supports these card networks, nationally and internationally (there may be additional charges for overseas usage). Both can be used in-store, online and at cash machines (charges for withdrawals typically apply when using a prepaid card). Plus, both types of cards offer the convenience of contactless payments.
A disadvantage with prepaid cards is that you will need to top it up regularly, and sometimes there is a cost. In comparison, a bank debit card is linked to a bank account. Additionally, you may find that prepaid cards are not as widely accepted as debit cards. For example, prepaid cards are not always accepted at petrol pumps, hotels, or places where funds are pre-requested before a total bill is created (such as a hotel minibar deposit). So, if you plan to use a prepaid card for holidays abroad, it's worth taking another payment option as a backup.
Some prepaid accounts offer multiple currencies in one card, taking away the hassle of trying to exchange cash while overseas. For example, the post office prepaid card (Travel Money Card) can hold 23 currencies, the Wise multi-currency account (also known as TransferWise) can hold 53 currencies, and the FairFX currency card can hold 15 currencies. Like the Wise multi-currency account, some offer very competitive foreign exchange rates too.
Did you know: Prepaid card accounts are often referred to as online bank accounts or current accounts, as these offer similar features to a regular bank account. Prepaid cards with sort code and account number are common too. In most cases, you can transfer money in and out of your prepaid account and make reoccurring payments for bills and subscriptions as with a standard bank account. However, as previously mentioned, prepaid card accounts (e-money accounts) are not covered by the FSCS.
| Acceptance and usage: | Debit bank cards | Prepaid cards |
| Visa or MasterCard network | Yes | Yes |
| In-store and online purchases | Yes | Yes |
| Contactless payments | Yes | Yes |
| Overseas usage | Yes* | Yes* |
| Account number and sort code | Yes | Yes** |
| * Fees apply. Additionally, there may be restrictions or limits on usage. | ||
| ** May not apply to all providers or account types. | ||
What’s cheaper to use?
You may find a bank account with a debit card cheaper than a prepaid card account when it comes to everyday use. Even though current accounts can come with monthly fees, these usually have insurance plans and other benefits included.
One thing to watch out for is overdraft charges, especially if you go over your limit and do not pay it back quickly. As an alternative, basic bank accounts do not come with overdraft, and normally there are no monthly fees. Prepaid accounts do not come with overdraft facilities.
There are free prepaid cards in the UK that do not charge an application or monthly fee. Other prepaid card charges may seem small initially, but they will start to add up with frequent usage. Prepaid account fees can include application fees, monthly fees, ATM fees, top-up fees, etc. We discuss fees and costs in more detail in our essential "Guide to prepaid cards", in the section "What to look out for?”.
| Fees and costs | Debit bank cards | Prepaid cards |
| Monthly fees | Yes* | Yes* |
| Overdraft charges | Yes* | No |
| Application charges | No | Yes* |
| Top up fees | No | Yes* |
| Other fees | Yes | Yes |
| * May not apply to all providers or account types. | ||
Which is easier to get?
Generally, it's easier to apply for a prepaid account than for a traditional bank account. Both still require some form of identity check, sometimes referred to as KYC checks (Know Your Customer checks). Additional identity checks can include proof of address and even photo ID. Some pre-paid card providers may charge you an application fee when you apply. However, most banks will not charge a fee, but they will likely require a minimum deposit.
Another difference is credit checks. There are no credit checks with prepaid card accounts. In contrast, a bank will likely perform a credit check when you apply - especially if an overdraft and a credit card are included with the account. Usually, there are no credit checks if you choose to open a basic bank account.
Age restrictions apply too. Bank accounts for 16 year olds exist, but you have to be at least 18 (sometimes over 21) to have credit products such as an overdraft. Bank accounts for children are also available from the age of 11, but they must be accompanied by a parent or guardian.
Some prepaid card providers like Nimbl have prepaid debit cards for kids too. These accounts give parents or guardians the ability to monitor spending and can help teach kids about money from an early age. However, the account application would need to be done by parents or guardians.
| Application process | Debit bank cards | Prepaid cards |
| Identity checks | Yes* | Yes* |
| Credit checks | Yes* | No |
| Age restrictions | Yes | Yes |
| * The level of checks depends on providers or account types. | ||
In summary
In many ways, prepaid and debit cards are similar in how you can use them to shop. However, a significant difference is that you have to top up your prepaid card, whereas a debit card is linked to your personal bank account. Another difference is e-money accounts such as prepaid cards and payment providers are not covered by the FSCS.
Both are widely accepted. However, you might occasionally find some places like hotels not allowing you to use a prepaid card as a form of deposit. Additionally, you might find that the fees and cost of using a prepaid card tend to add up after a while compared with a regular debit card. Where prepaid cards are likely to have an advantage is they are easier to apply for than a traditional bank account.
Still not sure? Take your time and compare your options. You can compare the best UK prepaid cards for your circumstances as well as bank accounts for free on MustCompare. If you’re wondering how prepaid cards stack up with credit cards, check out our previous blog: Prepaid card VS Credit card - What’s best?