Budgeting & Banking

Guide to the best prepaid cards for students

Prepaid credit cards are all the rage these days, but are they the right option for you? We've got the info you need to help you decide…
Guide to prepaid cardsThe concept of a prepaid credit card might seem a bit pointless to some (using a credit card to spend money I already have? Huh?) but there are benefits to using these cards, so they're definitely worth looking into – particularly if you struggle a bit with keeping within budget.

Not only do prepaid cards help you have more control over your finances, but they can even help increase your bank balance by making saving cash less of a challenge.

However, they're certainly not for everyone. Prepaids offer few perks to those who are already good with money (unlike credit cards), so it's important to do your research and weigh up your options before deciding which option to go for.

A new wave of prepaid cards (like Monzo) have started appearing recently that are hooked up to nicely designed budgeting apps so you can turn saving cash into something vaguely fun… ok, we said vaguely!

You might notice that prepaid cards are sometimes referred to as prepaid credit cards and prepaid debit cards too. Just to clarify, there's no difference in this circumstance – they all do the same thing.

How do prepaid cards work?

spending on credit cardsPrepaid cards don't work on credit, but rather you top it up with money from your bank account (or someone else's, if they're feeling particularly generous) and can only spend whatever cash is on the card.

This means you'll always stay within budget, as unlike a credit card, you can't spend outside of your card balance – think of it like a pay-as-you-go credit card if you like.

Prepaid cards work in exactly the same way as any debit or credit card, and are accepted as payment virtually everywhere – both online and in stores, restaurants, bars, you name it – and you can even withdraw cash with it at ATMs if you need to (although some charge you for this).

The key difference between a prepaid and a regular credit or debit card is that with a prepaid, when your balance hits zero there's no overdraft or credit available.

Unfortunately, this does mean no spending of cash you don't actually have, but the major bonus is this also means having no interest to pay back and no charges to catch you out if you go over your overdraft limit (most student bank accounts will give you a free overdraft, but you will be charged if you go too far into it). With a prepaid card, you can only spend what you have preloaded or transferred onto the card.

You can top-up prepaid cards with cash, by phone, online, by text, or with an app – depending on the kind of card you have. But beware that there can be additional fees involved depending on how you choose to top up and what the cards terms are.

You can always check your balance online, and some of the latest prepaid card technology gives you instant updates and notifications to your smartphone of exactly how much you're spending and where.

App-only prepaid cards

appJust in the last year, a few app-only prepaid cards have emerged that are hosted by small fintech (financial technology) startups – the most notable being Monzo and Loot (more info on these below).

These companies have created prepaid cards that are perfect for the smartphone generation (so ideal for students). They're seriously undercutting the banks by offering no additional fees as well as daily spending reports and pretty graphs to show where you're spending your cash.

Although still in the early stages of rolling out, these apps are already becoming extremely popular (with waiting lists to prove it!) and are likely to become the future of prepaid cards. Watch this space…

Find out how you could get up to 5% interest on your savings using one of these automatic savings apps – and the best part? The app does all the saving for you!

Should I get a prepaid credit card?

Whilst we'd be tempted to suggest that any student to give a prepaid card a bash at some point, there are certain circumstances where one of these cards would be particularly useful.

We'd recommend you consider a prepaid credit card if one (or more) or these 6 situations applies to you…

  1. You struggle to budget

    make a decisionCredit: Adam Grueber
    Prepaid credit cards are perfect for anyone who struggles to stay within budget each month, basically because you have no choice but to oblige!

    Assigning yourself a weekly or monthly budget and popping that money on your card to use for everyday costs will encourage you to really think more about what you're spending day to day.

    Unsure how much your weekly budget should be? Our handy budgeting spreadsheet will help you crunch the numbers!

  2. You have a bad credit rating

    Credit scoreMost prepaid credit cards come with a guaranteed acceptance rate, which is great for students who have been declined for a credit card in the past (something that will put a 'footprint' on your credit report and potentially lead to you being rejected for things like loans and contracts).

    Not only this, but prepaid cards can actually help improve your credit rating. Certain cards allow you to pay in a certain amount each month, and if you make all the payments successfully, they share the details with a credit report company on your behalf, which will bring your rating up.

  3. You're an international student

    internationalstudentUnfortunately, the terms for student bank accounts for international students tend to leave much to be desired. For example, if you're an international student, you're unlikely to get a 0% overdraft, meaning charges can occur if you ever end up in the red.

    Having a prepaid card can be perfect for international students, as banks are happy to dish them out since you'll only be spending your own money, and some cards allow family to top the card up from abroad should you need some financial support or emergency cash.

  4. Your parents are involved in your finances

    parents give child moneyIf your rents are worried you're not ready for a full blown credit card, or you're keen to demonstrate that you don't rinse all your cash on clothes and beer, this is your chance!

    Your rents can have access to your spending, and perhaps agree to top your card up a certain amount each month (they are technically expected to help out financially, after all).

  5. You're worried about going too heavily into your overdraft

    scaredcatIf you tend to nudge heavily into your overdraft to the point that you're teetering on the edge of reaching your limit (and being charged if you go a step too far) a prepaid card is a great way to teach yourself to stay within budget.

    Some cards nowadays will send you a notification when you're reaching the bottom of the penny jar too, so you're not left red faced at the supermarket checkout when your card gets declined buying toilet paper.

  6. You go abroad quite often

    travelSome prepaid credit cards can be handy for travelling abroad, as you don't have to worry about your card being stolen and maxed out, as you'll only have a certain amount on the card at one time.

    As with most credit or debit cards, you'll probably still have some foreign transaction fees to deal with, but some prepaid cards cater towards travel so offer better rates.

Prepaid cards vs. credit cards

Man looking shocked behind credit card statementCredit: Jason Rogers – Flickr
It's worth being aware than in many circumstances, a credit card will actually work out as a better option as there are way more perks involved.

The general idea would be that if you're pretty good at paying up for things on time, you'd be better off reaping the benefits of a credit card.

The main noticeable differences between a credit card and a prepaid are…

  • You can only spend whatever money you put onto a prepaid card, whereas a credit card allows you to borrow extra cash (sometimes you'll have to pay a bit of interest on what you spend, but 0% credit cards are pretty easy to get your hands on)
  • Credit cards are the easiest way to build a good credit rating (if you're on time with repayments!) whereas prepaids can't be used for that (apart from one card called Cashplus (more on this card below) which allows you to pay for your details to be shared with credit companies, but this option is better for people who already have a bad credit rating).
  • Whenever you pay for something over £100 with a credit card, you're automatically insured thanks to Section 75 Protection. Prepaid card don't have that security.
  • Most credit cards nowadays have heaps of perks such as reward points, cashback options and airmiles, but you won't see this with prepaids (although cashback is available on some cards).

The important thing to remember is that you should only go for a credit card if you know you're pretty disciplined when it comes to spending.

Our credit card guide has loads of info on the perks, what to look out for as well as the best credit card offers currently available. If you're unsure of which option to go for – check it out!

Are their any drawbacks?

creditcardThere are a few different potential drawbacks involved in using prepaid cards that it's important to be aware of before you go making any decisions.

First up, there is a potential security risk involved that, although unlikely, you never can be too careful! Basically, the way prepaid cards work is that they're not owned and run by banks.

They're what's called an 'electronic money product' and when you put your cash onto your prepaid card, it's stored with a payment processing company rather than a bank. Therefore, if that payment processing company were to go bust, you'd lose your cash.

For this reason, it's really important that you only pay onto your card in smallish doses. We'd recommend topping up once a week (most of the cards mentioned below don't charge for top-ups anyway, so this won't leave you out of pocket) – that way, if the company goes bust, you're not gonna lose out on a lot of cash.

This is sort of how prepaid cards are supposed to work, anyway: you pay in a small weekly or monthly budget and work through that until you're ready for the next installment.

With increasing competition from cards that charge next to nothing (more on that below), additional costs on prepaid cards are slowly becoming a thing of the past.

However, for clarity's sake, here's a breakdown of the different charges that could be applied and what they're for.

  • Application fee – As you can imagine, this is just a sort of admin fee for processing your application. This can be anything up to £10, but more often than not this process should be free.
  • Monthly fees – like many current bank accounts, some prepaids charge you a small monthly fee, but it's never normally more than £5.
  • Transaction fee – Some cards charge a fee for each time you make a payment
  • Renewal fee – As with most credit cards, prepaids need to be renewed every three years – and sometimes at a small price of around a fiver, but sometimes if you top up enough there's no charge.
  • Inactivity fee – Try not to let your card sit totally unused for months, as sometimes they'll stick a small monthly charge on as a slap on the wrist for not spending.

The best prepaid cards

  1. Monzo

    monzo cardPros: Contactless card, no fees (UK & abroad), budgeting app
    Cons: Security risk, no direct debits or standing orders available

    The top app-only prepaid card, Monzo (previously called 'Mondo') has a neat budgeting app where it stores all the information about your spending and presents it in a colourful graph for you to keep an eye on.

    Each time you make a payment, you're sent a notification including how much you spent and what on, so there's no waiting around to see when payments eventually show up on your bank statement (which can sometimes take days).

    There are plans for the card to become a fully fledged bank. They've shot to popularity recently as one of the best cards for spending abroad too.

    There's a waiting list a couple months long, but we've secured Save the Student users an exclusive queue jump!

    Find out more »

  2. Revolut

    revolut cardPros: No transaction or ATM fees, even when abroad; can also send money easily.
    Cons: Small mark ups in exchange rate on weekends.

    Revolut is a great option for storing your travel money when abroad. They offer interbank rates (the rates banks give each other rather than banks give to customers) on foreign currencies, and will show live updated exchange rates down to the very second on the app whilst you make your purchase.

    However, they do have a small mark-up on the exchange rate over the weekends since the markets are closed (interbank rate plus 0.5%-1.5%).

    They also don't impose any ATM fees if you withdraw cash abroad, provided it's less than £500 (or equivalent) after which they'll charge 2%. Another thing we like about Revolut is that you can also use the app to send money easily to friends, via whatsapp, email or even SMS.

    Find out more »

  3. Loot

    new loot cardPros:  Budgeting app, no fees, contactless card
    Cons: Security risk (not officially a bank)

    Loot is an app-only prepaid debit card that's specifically tailored for students (and was founded by a 22-year-old student, so extra brownie points there!).

    As well as ditching all the fees normally associated with prepaid cards (including transactions abroad!), this app is particularly suited to students as it categorises all of your spending into an infographic so you can see clearly how well within budget you are and if you're forking out too much in one particular spending area.

    This makes learning to budget a lot easier, and even kinda fun!

    With a Loot card, you're also given an account number and sort code with it, so you can set up direct debits and standing orders too. Perfect for international students who don't want to go to the trouble of opening a UK account for a short period if they're on Erasmus.

    It's worth mentioning that we noticed Loot are experiencing a few teething problems at the moment when it comes to setting up accounts. Hopefully this will be ironed out soon – we'll let you know when we do!

    Find out more »

  4. Pockit Prepaid

    pokit-logoPros: application cost 99p, no monthly fee, free to top-up, cashback available
    Cons: Charges for cash withdrawals, expensive to use abroad, reports of bad customer service

    Pockit has a low application fee of 99p, guaranteed acceptance rates, no load fees (unless you use PayPoint, in which case you'll be charged 99p) and no transaction fees.

    And as there's no minimum contract – you can cancel at any time without penalty. However, we wouldn't recommend you even contemplating using this card abroad. They charge a 4% foreign exchange fee and £2.25 ever time you use your card!

    It's also worth mentioning that we've heard very mixed reviews about Pockit, and the general consensus is that their customer service is pretty slow and unhelpful (with expensive call rates to boot).

    Find out more »

  5. Cashplus

    Cashplus prepaid cardPros: No transaction fees, cashback available, free purchase protection, option to build credit rating
    Cons: £5.95 application fee, monthly fee

    If you’re planning on making a big purchase such as a holiday, the Cashplus prepaid card offers free purchase protection in case a company goes bust.

    It is also free to top up if you do it in person at the post office, by bank transfer or through a standing order. Cashplus also offers cashback whenever you buy something online through the Cashplus cashback site.

    What makes them stand out is their CreditBuilder feature, which allows you to work on improve your credit rating.

    Basically, it works by them loaning you a lump sum of around £70, and you pay it back every month in 12 installments (plus a £5.95 monthly fee). Note that you must make every payment on time for this to work, so don't bother with this card if you can't commit. The info is then shared with a credit company to show you're able to pay back in time – which will in turn improve your credit.

    Find out more »

5 tips when using prepaid cards

top tipsCredit: Colin Davis
Here are seven simple steps to help you reap the benefits of your prepaid cards:

  1. Set up a weekly or monthly direct debit from your main account to set your budget and prevent overspending. Over time, you'll get used to spending the same amount every week, and it'll get much easier to stay within limits.
  2. Decide now if the prepaid card is going to be for all your expenses (so rent and bills too) or just for weekly spending to cover food, books, printer credit and toilet rolls, etc.
  3. If you have generous parents who are happy to offer you some financial support at uni (as the government recommends), arrange for them to load any money they're kindly donating to your cause directly onto your card.
  4. Always keep track of any monthly fees or transaction fees that come with your card. If you find you're getting too many little charges here and there or you're not not using your card enough, cancel your account to avoid any ongoing charges.
  5. Zero balance really does mean zero balance on these cards, so watch what you spend! You should find over time that you really improve on your budgeting skills.

Are you sure you're getting the best deal on your current account? Check out our guide to the best student bank accounts – if you spy a better deal, get switching!

Have you had dabbled in the world of prepaids and have something to share? Let us know in the comments section below.

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