By Fred Mawer
Updated: 11:03 EDT, 5 September 2011>
Pre-paid currency cards have become increasingly popular with holidaymakers over the past few years.
Sometimes called 'travel money cards' or 'cash passports', they look like debit or credit cards. Branded Visa or MasterCard, they allow you to load money on to them before you go on holiday and then withdraw the cash from ATMs or make purchases when you're abroad.
However, they offer no credit facility - you could say they are like a 21st Century version of travellers' cheques.>Enlarge
Settling up: Pre-paid currency cards are growing in popularity
The cards are widely available, including from the Post Office and travel agents. Many suppliers promote them as cheaper alternatives to other forms of plastic when abroad. However, this has not always been the case. Nationwide's debit card, which used to have no charges for foreign usage, worked out cheaper than the pre-paid cards. It was - and still is - more convenient.
But last year, Nationwide began imposing a two per cent commission on foreign transactions made on its debit cards, along with an additional £1 fee every time you took money out of an overseas cash machine.
So with a trip to Spain looming, I decided it was time to see if I'd be better off using a pre-paid card than my Nationwide debit card.
They are free to obtain, and don't charge the holder for withdrawing cash from overseas ATMs.
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I calculated how much it would cost to take out €500 in five lots of €100 using the two pre-paid cards and my Nationwide card.
Based on the exchange rates each was offering on the same day in late July, it would have cost me £457.68 to get €500 with Nationwide, £456.37 with My Travel Cash, and £452.08 with Caxton FX. So the Caxton FX card would have saved me £5.60 over my Nationwide card.
The reason the saving wasn't greater was that the exchange rate Caxton FX was offering on the day was worse than Nationwide's.
The sum of £5.60 isn't too significant, but presuming similar differences in exchange rates, over a year of travelling I reckon the Caxton FX card would save me about £30.
Pros and cons: There are definite advantages to using the 'new travellers' cheques', but there are also pitfalls
I applied for the card online. The whole process went smoothly - you need to pay a £10 deposit, though that is credited to your card - and it arrived promptly. However, you're told to allow seven working days.
After a further ten minutes online and a phone call, I had transferred the equivalent of €500 from my bank account on to the Caxton FX card, got my PIN, and was ready to go.
But before you follow suit, there are points to consider.
PRE-PAID CARDS: THE PROS AND CONS
- Watch out for charges. Some cards cost £10 to obtain and most charge a fee (up to £3) every time you withdraw money from an overseas ATM. Also, if you don't use the card for a certain number of months, you are liable for an 'inactivity fee'.
- The best pre-paid cards are significantly cheaper to use abroad than the most expensive debit cards. For example, on overseas transactions, NatWest charges a 2.75 per cent 'exchange rate transaction fee', plus a further £2 minimum fee for cash withdrawals. Based on same-day exchange rates in late July, withdrawing €500 in five transactions with a NatWest debit card would have cost nearly £14 more than with a Caxton FX card.
- Most foreign currency pre-paid cards are in euros or US dollars. If you're going to a country that doesn't use these currencies, you could get a sterling-denominated pre-paid card, but I wouldn't recommend it because you'll pay a foreign-exchange markup on each transaction.
- The exchange rate on pre-paid cards is fixed on the day you load money on to the card. This is an advantage if exchange rates worsen before you use the card, but a disadvantage if rates get better.
- You can't go overdrawn, so a prepaid card is a good option if you want to keep within a certain budget.
Plastic fantastic: Be careful which debit and credit cards you use abroad
BEST DEBIT AND CREDIT CARDS TO USE ABROAD
- Norwich & Peterborough Building Society (www.nandp.co.uk) offers free use of its debit cards overseas, but to avoid fees on the accounts you need to pay in regular amounts of money or make regular transactions. The debit card provided by Nationwide (www.nationwide.co.uk) is cheaper to use abroad than those of most banks.
- Though you can make overseas purchases in shops and pay hotel and restaurant bills with pre-paid cards and debit cards, it's cheaper to use a credit card as long as you pay off the balance in full each month.
- Most credit-card providers levy a sneaky charge on each foreign transaction by worsening the exchange rate by 2.75 per cent. However, a few don't charge anything, including the Halifax Clarity card (www.halifax.co.uk) and the Post Office's credit card (www.postoffice.co.uk).
- And don't use any credit card at a cash machine, as you'll be hit with hefty interest charges.
Source : http://www.dailymail.co.uk/travel/article-2028523/The-Crafty-Traveller-Can-cash-passports-really-save-money.html