Kamis, 28 Juni 2012

Watch out for hidden charges on prepaid cards

Watch out for hidden charges on prepaid cards

By Clare Francis, Moneysupermarket.com

PUBLISHED: 13:04 EST, 28 June 2012 | UPDATED: 13:36 EST, 28 June 2012

Prepaid cards are an increasingly popular option for holiday makers heading overseas. With most debit and credit cards charging for foreign usage a prepaid card can be a cheaper alternative.

However, some cards have hidden fees which, if you are not careful, could catch you out and result in the cost being higher than you were anticipating.

Plastic is a convenient and safe method of payment when you are on holiday as it saves you having to carry around a large amount of cash. But if you use your standard debit or credit card, chances are you’ll pay a fee. Most card providers levy a ‘loading’ fee on overseas’ transactions, usually between 2.5 per cent and 3.0 per cent of the value of the purchase.

Convenient: Plastic is a common payment method while on holiday

Convenient: Plastic is a common payment method while on holiday

You are also likely to pay a withdrawal fee if you use your card to take money out of a cash machine. Cash withdrawal fees also tend to be around 3.0 per cent, usually with a minimum charge of £2.50.

These costs can soon mount up. Research from the Post Office estimates that foreign usage fees will cost British holidaymakers around £200million this summer, yet they are a cost that can be avoided.

Prepaid cards are frequently marketed as a great fee-free alternative to a traditional credit or debit card. They use the Visa or Mastercard payment network so can be used wherever you see those logos. And they work in a similar way to a pay-as-you go mobile in that you load money onto the card and then top it up as an when you need. However, some offer better value than others as there are a number of fees and restrictions that can be levied.

What fees do you need to watch out for?

Card issue fee: A number of providers charge for their prepaid cards. The Escape Travel Money Prepaid Mastercard, for example, costs £9.99. However, there is no need to pay as many of the cards cost nothing.

Cash withdrawal fee: One of the reasons many people choose to take out a prepaid card is because most debit cards charge a fee to withdraw cash from an ATM if you are abroad. Some prepaid cards do the same though so this is something to watch out for. Fairfx charges €1.50 on its Euro Card, $2.00 on its Dollar card and £1 on its Anywhere card. If you have a Cashplus Card you’ll pay even more. It charges £3.00 for withdrawals from non-UK ATMs.

Dormancy fee: Some providers will levy an administration fee if your card is not used for a certain period of time. Cashplus charges an ‘account maintenance fee’ of £4.95 per month on accounts where there is money on the card but it hasn’t been used for 120 days. Given that a lot of people only use their prepaid card when they’re abroad on holiday, this type of thing could easily catch people out.

Cancellation fee: To a certain extent this smacks of damned if you do, damned if you don’t. While on the one hand you could be charged a fee if you don’t use your prepaid card regularly, you may also be charged for closing your account down. For example, you’ll be charged £10 to cancel a World First Euro Prepaid card.

Load restrictions: All debit and credit cards limit the amount you can withdraw in cash each day and with credit cards there is obviously a credit limit that restricts the amount you can spend. Prepaid cards also have limits on the maximum you can withdraw within a certain period of time. However, some also cap the amount you can load onto the card each year. The Escape Travel Money Prepaid Mastercard for example, restricts you to loading a maximum of £650 in a 12-month period. With Caxton FX on the other hand, you can load up to £40,000 a year onto the card.

So which are the best prepaid cards?

The other thing to bear in mind about prepaid cards is that the exchange rate can vary from provider to provider. They use the wholesale MasterCard or Visa rate so you tend to get a better rate of exchange than if you changed cash at a bureau de change or bank, but most add an element of commission and this can be harder to factor in when comparing deals.

To help, MoneySupermarket ran some comparisons to see how some of the leading deals compare. We looked at how much it would cost in sterling to make €1,500 of purchases (in 10 separate purchases) and two cash withdrawals totalling €750. Here’s how they stacked up:

*£5 credited to your card if your initial card load is £500 or more. A MoneySupermarket exclusive available to This is Money readers.
Sourced by: www.moneysupermarket.com 13.06.2012 between 2pm and 3pm

What about credit cards?

Credit cards should not be used for cash withdrawals: not only will you be charged a fee, you will also incur interest from the day the withdrawal is made and the interest rates for cash transactions are higher than those for purchases. However, there are a number of cards which don’t charge you for purchases made abroad.

If you are over the age of 50 you can apply for a Saga Platinum Card which does not levy a fee for overseas’ usage and offers a nine month 0 per cent period on purchases. Once the interest free period ends you will be charged the representative annual percentage rate (APR) of 11.9 per cent (variable) on any outstanding balance.

If you are under 50, so won’t qualify for the Saga card, The Post Office Platinum Card and Sainsbury’s Gold Credit Card also don’t charge for purchases made abroad. The Post Office Card has a three month interest-free period on purchases after which you will pay the representative APR of 16.9 per cent variable.

There is no 0 per cent offer on the Sainsbury’s Card although the interest rate charged on purchases, if you don’t clear your balance in full each month, is lower at 9.94 per cent.

However, this card has a £5 monthly fee (which takes the representative APR up to 20.1 per cent variable) although you do get annual family travel insurance as an added benefit so the value of that effectively wipes out the cost of the fee.

If you have a Nationwide Flexaccount (the building society’s current account), or are prepared to open one, you could apply for the Nationwide Select Card. This offers a 12-month 0 per cent period on purchases. What is more, you receive 0.5 per cent cashback on all purchases as will not incur charges for spending made overseas. The representative APR on this card is 12.9 per cent.

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