Prepaid cards and other prepaid products have become popular as an alternative way to pay for purchases, to give as gifts or to use online or when travelling. Whether physical or electronic, these products are—or can be—loaded with funds that can be used by the cardholder to make withdrawals or purchase goods or services. While prepaid products offer several benefits, they have costs and conditions that you should be aware of.

How do prepaid cards work?

Essentially, prepaid cards look the same as any other card; they have a magnetic strip, chip, long number on the front and a familiar logo such as MasterCard or Maestro.

Appearances can be deceiving though. Although looking the same as a credit or debit card (you even get your own PIN as you would for another card), a prepaid card does not let you spend from your current account, nor does it let you pay for goods by using a pre-agreed credit facility.

Instead, you load money onto the card (how much is up to you, although there’s usually a minimum and maximum amount you can pre-load), and then you use the card to spend money in the same way you’d spend using a credit or debit card.

Once the money on the card runs out, you can’t spend any more until you have uploaded some more funds