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How Prepaid Credit Cards work, and how to save with one
Smart Money

How Prepaid Credit Cards work, and how to save with one

Last updated

Great for travellers, gifts and budgeting, prepaid credit cards are lost-cost, flexible tools for making global spending easy.

What’s a prepaid credit card?

A prepaid card lets you pop on an injection of cash, spend it, and then reload it.

Sounds simple, right? Prepaid cards are fuss-free, but they can come with a bunch of little fees or limitations that might not suit what you want to use one for.

So, let’s look at the ins and outs of prepaid credit cards, what fees they come with, when you might want one, and how to save money on them.

How do prepaid cards work?

First up, the term ‘prepaid credit card’ is a little misleading; prepaid cards don’t offer credit that you have to pay back, with interest. If anything, they’re more like a prepaid debit card. 

You just load your prepaid card with cash and use it online, in-store, to pay bills or for international trips. You’ll never need to worry about getting into debt or being charged interest. When the money runs out, you just reload it with more cash.

If you’re wondering why you’d want a prepaid credit card (rather than just pulling old-school cash out of your pocket), they’re helpful for when you’re travelling overseas, for young or new bankers, or to give as a gift card as well as tap-and-go everyday spending. As a side note, prepaid gift cards can’t be reloaded with more money once they’re used out.

You can apply for a prepaid credit card online or at a participating business instore (some can be bought at Australia Post, for example). Money can be loaded onto the card via bank transfer, instore, or using BPAY, which may attract a small fee.

What are the benefits of a prepaid card?

Firstly, you’ll never have to worry about paying interest or carrying a balance month-to-month, since you’re only spending the money you load onto the card. Once it runs out, it can’t be used until you transfer more money onto it.

Did you ever use the old ‘you can only spend what’s in the envelope each month’ system of budgeting? Well, prepaid cards can act like a virtual envelope for keeping to a budget, if that’s your goal. 

Some prepaid cards offer contactless payment, and come with security protection if your card is lost or stolen. Most cards also have a decent app or website that you can use to check your balance and make money transfers on the fly, too.

Prepaid cards also come with other benefits:

  • Safely load it with international currencies so you don’t have to carry cash while travelling
  • Lock in a great exchange rate before you travel and save money
  • Low fees and charges
  • Use as gift cards
  • Potential to use ‘split payment’ – a portion of the purchase on your prepaid card, the rest in in cash or another card
  • No credit checks apply to get a prepaid credit card
  • Security against loss, theft and fraud
  • Some cards allow employers to deposit wages directly onto the card

You also don’t need a bank account or credit card with the provider to get a prepaid credit card, which is a huge bonus. Just apply either online or instore.

What are the drawbacks of a prepaid card?

There aren’t too many downsides to a prepaid credit card, but there are some limitations that could end up costing you in fees or restricting how you can spend. 

If you’re thinking about getting one, make sure to check these factors first:

Load limits. While many prepaid cards can be loaded with as little as $1, some have a minimum of $50 or more, and caps on how much money the card can have on it.

Where you can use it. If you’re giving the prepaid card as a gift, your lucky friend will have to use the card at stores that accept the card’s brand. For example, a MasterCard prepaid gift card can only be used where MasterCard is accepted, in Australia and overseas. Luckily, that’s most places.

Fees. Some fees may apply, including:

  • Issue fee: you may be charged an activation fee when you first sign up, ranging anywhere from a few dollars to $30. Many don’t charge any issue fees.
  • Loading fee: some prepaid cards charge a fee each time you transfer money onto it, while others offer it free.
  • ATM fee: you can withdraw cash from your prepaid card, but it may cost you in multiple ways depending on the card. Fees can be charged for withdrawals (especially overseas) by the ATM owner as well as the prepaid card provider, as well as on balance checks. Check the small print to find the details of ATM transaction fees for your card.
  • Decline fee: if your card declines during a transaction, you may be charged a fee to your account.
  • Card-to-card transfer fee: you can transfer money between prepaid credit cards, but you might be charged a fee each time.
  • Additional card fee: some providers let you add an extra person to your card and share the funds, but there may be a cost involved per additional card.
  • Foreign transaction fee: if you’re using your card overseas, you may attract a 2-4% foreign currency fee per transaction.
  • Inactivity fee: if you don’t use your card for a certain period of time, you may be charged a small fee each month until you either use it or cancel the card.

What are the types of prepaid cards?

Prepaid cards can be either reloadable or, in the case of gift cards, one-time affairs that can’t be loaded with more money down the track. 

Types of prepaid cards:

Everyday prepaid cards Everyday prepaid cards are for everyday shopping (online or instore), paying bills and managing your spending. They’re often compatible with tap-and-go payments, and can be reloaded using the provider’s website or some selected stores. You can often add more cardholders, but a fee might apply.
Travel Prepaid Cards Travel prepaid cards usually offer multi-currency conversion, so you can use the same card across several countries without having to convert your cash. Many travel cards come with other perks like free access to wifi hotspots around the world, emergency funds assistance, and the ability to transfer money to a friend’s prepaid credit card.
Gift Prepaid Cards You can choose to have a prepaid gift card delivered directly to the recipient, and load it with a nominated amount or choose a card with a pre-set amount already on it. No extra money can be added.
Rewards Prepaid Cards Some prepaid cards are attached to rewards programs, like the Qantas Frequent Flyer program, which allow you to earn points when you spend using your prepaid credit card.

What should I look for when comparing prepaid credit cards?

To find the best prepaid card for you, you’ll need to think about why you’re getting a prepaid card; are you planning on travelling and need to be able to use several currencies on one card? Or is your teen looking for a first bank card, one you can transfer pocket money onto?

Knowing how your card will be used also helps to narrow down what features you’re looking for, and see how you could save money with it.

If you’re using the card for travel:

  • Check the limit on the amount of money that can be loaded onto the card. Make sure it’s enough to get you through your trip so you don’t have to transfer money at a poor exchange rate mid-travel.
  • Check ATM withdrawal fees for overseas merchants.
  • Check the prepaid card’s supported currencies. If you’re traveling to a country that your card doesn’t support, you’ll have to pay foreign transaction fees, so be sure to check those before you apply.
  • See if the card offers any travel perks, like free lounge access when your flight is delayed.

If you’re using it as your own spending card:

  • Check the reload fee and ATM fees.
  • Check how easy it is to reload (most have an app or website login that makes it a simple process).
  • Check the minimum and maximum load fees – some start at $1 and some start at $100.
  • Check supported currencies and foreign transaction fees if you plan to use the card for online overseas spending.
  • Check if the card comes with any rewards for your spending, as some may be attached to a frequent flyer program that lets you earn points towards travel.

If you’re giving it as a gift:

  • Check the minimum amount you can transfer onto the card.
  • Check it can be used across a variety of stores (most are Visa or Mastercard, which means they’re accepted in most stores around the world).

If you’re considering one for a young banker:

  • Check the reload fee – if you’re using it to make regular pocket money deposits, you’ll probably want to look for one with no reload charges.
  • Check the minimum amounts for loading and reloading, as some can be as high as $100 (which is a lot of pocket money per week).
  • Check the inactivity fee. These are usually pretty low, but will turn into a monthly expense if the card isn’t used for a certain amount of time.
  • If applicable, see if the card allows employers to deposit wages directly onto the card.

If you want to use it for business:

  • Check if additional cardholders can be added to the account, and if costs apply.
  • Check the minimum and maximum load limits.
  • Check if there’s any rewards attached to the card for your spending.

In short, you’ll want to compare:

Load limits The minimum and maximum amount that can be initially deposited onto the card
Reload fees How much you’ll be charged (if any) for transferring additional deposits
Sign up fees The charge for activating the card
Other fees There can be fees for ATM withdrawal, currency conversion when using the card for international spending, inactivity fees and replacement fees
Other benefits Some cards come with perks like free global wifi, complimentary lounge use if your flight is delayed and discounts with participating retailers
Ease of use Ensure you can use the card at places you shop, that it’s easy to reload, and comes with contactless payment.

How do I apply for a prepaid credit card?

You’ll be able to apply either in-person at a bank or partnering store, or you can fill out the application online. Check that you meet the eligibility criteria for the card and have the right documents on hand.

Eligibility and supporting documents change between card providers, but generally you’ll need to:

  • Meet age requirements: some prepaid credit cards require you to be at least 18 years old, while others accept those as young as 14.
  • Possibly make an immediate deposit: you may have to make an initial load during the application process.
  • Provide personal details: you may need to supply your full name, address, date of birth and photo identification to verify who you are.

You’ll also need to activate your card before you can use it, following the card issuer’s instructions. Usually, you’ll be able to activate your card online, in person or over the phone. You might have to choose a PIN, so have one ready that you’ll remember.

What are the alternatives to prepaid credit cards?

If you’re looking for a card that’s a bit like a prepaid card but doesn’t need to be preloaded with a lump sum of cash, you could think about interest-free credit cards, a low annual fee credit card, or one with no annual fee at all.

There are some good benefits to using a credit card instead of a prepaid card, depending on how you plan to use it. 

Benefits of using a credit card:

  • Money management: You won’t need to worry about continually reloading your card, fronting up large sums to deposit onto the card, or paying a reload fee each time. 
  • More rewards: You might also access extra perks with credit cards, like cashback rewards and complimentary travel insurance.
  • Less fees: Some credit cards have little to no ongoing costs, which could work out cheaper than the fees attached to a prepaid card, especially if you plan to use it for overseas spending or the card has a reload fee.
  • No interest: If you’re used to staying on top of your payments and pay off your balance each month, you won’t pay interest on your purchases.
  • No foreign transaction fees. Many credit cards don’t charge currency exchange fees on purchases made overseas, whether in-person or online.
  • Free additional cardholders. It depends on the credit card, but many allow a bunch of extra cardholders for no extra cost.
  • Boosts your credit score. Credit cards help you earn a credit score, which determines your ability to get a loan (as long as you’re responsible with your spending and repayments!).

Credit cards that are worth considering as an alternative to prepaid cards:

  • No annual fee credit cards.

If you’re good at staying on top of repayments, a credit card with no annual fee could work out cheaper than a prepaid with fees attached. You may get free additional cardholders, no fees on overseas purchases, complimentary travel insurance, and purchase protection.

Cards that currently offer no annual fee:

Low annual fee credit cards

Some credit cards offer annual fees as low as $30, but come with small cashback rewards and other benefits. You’ll often get free additional cardholders, use with digital wallets, and interest free days on purchases, so you won’t pay interest if you pay the card in full each statement period.

For instance, at the time of writing, the ANZ First Credit Card has a $30 annual fee with $30 cashback, 3 free additional cardholders, purchase protection and other insurances, and is compatible with digital wallets.

You may also be able to use a 0% balance transfer on the card, which allows you to transfer an outstanding balance over from another credit card and pay no interest during the introductory period. 

See our compilation of the top credit cards with low or no annual fee.

  • Interest-free credit cards.

These cards don’t charge interest on any unpaid balances, but may charge a small monthly fee (which is often waived if the card is paid in full each month). For instance, the NAB StraightUp Credit Card doesn’t charge any fees for overseas spending, has no annual fee or interest charges, and no fee if the card is paid off each month.

You could also look into low interest credit cards, or cards with an introductory offer of no interest for a certain timeframe (often six months to a year). Cards with introductory offers can sometimes come with other bonuses like big rewards points or hundreds of dollars in cashback. 

Before you apply for a card with an introductory offer, you’ll need to think about how long you want the card for, if you’re responsible with repayments so you don’t pay interest once the introductory period ends, and if you can justify any annual fees.

We’ve compiled the top interest-free and low interest rate credit cards here.

The Bottom Line.

Prepaid credit cards have a lot of benefits for anyone wanting a card that can be preloaded and reloaded with little fuss and fairly low fees. It’s worth thinking about a prepaid card if you’re heading overseas and want to use one card for multiple currencies and find the best exchange rate. 

They’re also helpful for the budget-conscious, for keeping business and personal finances separate, and as a no-frills spending card for new bankers.

Prepaid cards typically come with good protection against loss, theft and fraud, and you can freeze the card if you need to, making it safer than carrying cash.

There are fees attached that may add up depending on the card you choose and the way you shop. For instance, you may rack up fees if you tend to reload the card with small amounts frequently. 

If you’re looking for something that you offers more in terms of bells and whistles like cashback rewards, earning points or purchase protection that insures things you buy against theft or damage, you could think about an interest-free or no annual fee credit card.

FAQs

What happens if I refund a purchase I made on the card?

Typically the money will go back onto your prepaid credit card. Check the PDS of the card before you apply to make sure you know how their refund process works.

How do I load money onto a prepaid credit card?

You’ll be able to use the providers website or app to transfer money from your debit account, or do a bank transfer or BPAY payment. You might be charged a flat fee or percentage of the amount transferred if you use BPAY.

Some cards ask you to load your first deposit during the application process. Beware, you might pay an administration fee if you reload in-person or over the phone.

How do I check the balance of my prepaid credit card?

You can log onto the issuer’s website or app to see the balance of your prepaid credit card, or call the customer service number (possibly for a fee). You can also use an ATM, but some may charge a fee to check balances, especially if you’re overseas. Check the PDS for a full list of fees for using your card.

Can I use a prepaid card for my business?

Small business owners and sole traders might find a prepaid card helpful for keeping business expenses separate, replacing petty cash and capping employee spending. Some cards allow you to add additional cardholders (there may be a fee involved) so you’re all sharing the same account.

Can my child get a prepaid card?

The minimum age for a prepaid card varies, but there are some that cater to people as young as 14. Check the eligibility criteria to see what minimum age applies.

Do I have to cancel a prepaid card?

Yes, some cards are charged an inactivity fee if you don’t use it for a certain amount of time, so it’s better to cancel if you think you don’t need it. You might have to pay a small cancellation fee, and any unused money will be transferred to your nominated account. 

Are there caps on how much I can transfer to a prepaid credit card?

There are two types of limits on prepaid cards: how much money you can transfer, and the time period you can transfer it in.

For instance, your card may have a $10,000 maximum reload limit in 24 hours. That means you wouldn’t be able to load $10K and then another $10K five minutes later. Make sure your card’s reload limits suit the way you’ll be spending your money before you apply. 

Pauline

Pauline Hatch

Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.

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