Pre Paid Credit Cards Warning
Feeds
Friday, 30th April 2010
So the banks have dived right into the latest money craze: the pre-paid credit card. The sales pitch for these cards is that they help you to manage your cash by not letting you spend more than you have, which means no overdraft charges or penalties. This is attractive for customers who have been made victims by extortionate overdraft penalties, such as First Direct's £25-per-increment charge (for example, if you go £9.99 overdrawn, that's £25 - if another £7.99 goes out, that's another £25 and on and on).
So these cards are a great idea right? Well, take care, because these cards open up a new world of pain for cash-strapped people as they too have some hidden man-traps that you need to watch out for.
So what does it cost to get one of these cards?
The fees are hidden to various degrees in this respect. One website was totally up-front by having a large "Fees" menu item on their website as well as covering all the fees off in their FAQ section. On the other end of the scale, one website I visited today had relegated the fees to a small link at the bottom of the page. Sadly, even if you had read this link, they had saved a giant bombshell for a brief mention in their terms and conditions. If you are the kind of person that doesn't read terms and conditions, now is a good time to start - I'll drop the bombshell later in this article.
Generally speaking, the fees all fall into the following categories.
- A set up fee, which is typically in the region of £10
- A fee charged each time you top-up the card (some cards offer this for free, or have different rates to encourage you to top-up in a certain way)
- A fee charges each time you use the card (some cards offer this for free, others charge a small amount such as 20p per transaction and others charge a percentage, such as 2%)
- A fee charged each time you use the card to withdraw cash (this varies from 99p per withdrawal to £1.50 per withdrawal)
- A fee charged each time you use the card to withdraw cash abroad (in some cases £3 per withdrawal and in others an additional percentage is applied)
The vast variety of combinations of these charging structures is reasonably confusing, although if you can work out how you are likely to use the card, you can then opt to use the card that best fits your model.
However, even if you think you've got a good deal, be sure to check the terms and conditions. This is where the bombshell appears.
The card I looked at in detail this morning appeared to have the best charging structure. £9.99 to set up, FREE to use for card payments and just 99p to withdraw cash in the UK. These were the fees set out on the hard-to-find "fees" page. Halfway through the online application process, though, you hit a page asking you to confirm you have read the terms and conditions. This is your first opportunity to do so and it would be so easy to tick that box and move on. If you do this though, you'll miss the important detail.
You can store up to £3,000 on this card (and you don't get any interest at all on this balance). What you'll find out when the card expires is this:
"...This agreement will terminate 36 months from account opening date, after this time the funds on your card will expire and become valueless..."
Yes, that's right. You could lose up to £3,000 when the card expires - and what's more, these cards are not protected by the financial compensation scheme either, so if the company running the card goes bust, you won't get any money back (not that they are likely to go bust having scraped off all the money from expired cards!)
So think twice before you "take control of your finances" with one of these pre-paid cards.