Pre-Paid Cards: a Cost-Effective Alternative for Foreign Exchange?

These have been around for a couple of years now, and are becoming increasingly popular, with new products hitting the market every week. Looking at MoneySupermarket.com, for example, you will find dozens of pre-paid cards to choose from. They are marketed as a cost-effective alternative to using credit and debit cards abroad and a way of avoiding excessive bank charges for foreign exchange. They are typically available as Dollar Cards, Euro Cards, Sterling Cards, as well as in many other currencies.

The main advantage of the pre-paid card is that it allows you to manage foreign cash on your account whilst travelling abroad, via your mobile phone or the Internet. You can load cash onto the card, check your balance, top it up, make payments and withdraw cash from ATMs both at home and overseas. Some can also be topped up at the Post Office, making it a handy option for anyone without a Bank Account.

As well as regular travellers and holiday-makers, they are a particularly good option for under-18s, gap-year students and other young travellers, offering a way to learn to handle money responsibly, without carrying a lot of cash or borrowing a credit card from a begrudging cash-strapped parent. Another advantage for the young globe-trotter is the ability to track spending online or via their mobile.

Most cards have the option of a secondary card, so the principal card-holder can share funds with their spouse or children in a secure and controlled manner. As you can spend only what is loaded on the card, and no more, there is no risk of Junior going crazy with Dad's credit card, as well as no risk of losing a wad of cash. In fact all those of you who need to limit and control your spending should consider using a pre-paid card: no nasty shocks and big credit bills after you return from your holiday! They are also a boon for anyone with a poor credit rating, as no credit checks are required when applying for a pre-paid card.

Amex and ICICI Bank (India's 2nd-largest bank) have recently launched a new card targeting business people as well as holiday-makers. According to the press release:- 'The new card is aimed at the fast-expanding customer segment of discerning travellers who have frequent travel schedules for both business and leisure'. Added benefits on offer include a 24x7 customer hotline, an international toll-free number, travel insurance, emergency travel and medical assistance, and access to the numerous offers from over 10,000 merchant participating in the Amex 'Selects' program in more than 76 countries.

I used a pre-paid card (Caxton FX) on a recent holiday in France, and found that it was a cheaper option than resorting to my usual debit card. For those of us, like me, with the memory and attention-span of a gnat, however, it may prove challenging to remember yet another PIN number, as well as Internet account login and password details. It certainly saved me the worry of losing cash, but introduced a clutch of new things to worry about...what if I lose my mobile, what if I lose my laptop, what if there is no Internet cafe in the rural South of France? But admittedly, that may just be me. In reality the only problem I experienced was a bit of faffing about with my mobile when travelling in rural areas with poor reception. My better half had a different card and wasn't so happy with the service from his provider. There were endless problems trying to top up his card and check the balance; as the contact number he had been given just didn't seem to work... When we got back we found - on a different page of the website - something that said that the short-cut number may not work outside of western Europe, and gave a full-length alternative. It would have helped if that had been on the same page as the general instructions. Although last time I looked, France WAS in western Europe.

If you do decide to go down the pre-paid route, make sure you watch out for other pitfalls, like activation fees, monthly fees, statement fees, inactivity penalties and reduced legal safeguards for lost or stolen cards. Luckily for all of us there is plenty of information available online to help you make the right choice. Do your homework and you should be able to find the right card for you. Overall I would say this is a handy addition to your wallet: once your pre-paid account is up and running you are all set for those last-minute bargain holidays. Just remember to pack your mobile.