Prepaid cards

Using your own money

Prepaid cards allow you to load money on the card and then use those funds wherever the card is accepted. Prepaid cards have important limitations which you should keep in mind when using them. 

How prepaid cards work

Prepaid cards need to be 'loaded' with money before you can make purchases. The amount of money you can use or withdraw generally is limited to how much you have available on the card.

Some prepaid cards are also known as 'reloadable cards', which allow the cardholders to 'top up' the amount of value available on the card. Many prepaid cards can be used at a variety of locations. Some can be used with any retailer that takes credit or debit cards.

They are available from financial institutions, retailers, foreign exchange merchants and post offices.

Why get a prepaid card?

There are various reasons why you might get a prepaid card.

To control spending

Prepaid cards are used by people who want to control their spending and don't like carrying too much cash. They allow them to have a card to make purchases but their spending is limited to the amount available on the card.

For young people

Prepaid cards are sometimes bought for young people by their parents to restrict their spending to the card's loaded amount and monitor spending on the card. If the card is lost or stolen parents can call the card issuer to get the account blocked. In most cases, they can have the outstanding balance transferred to a new card.

For travel

Prepaid cards are bought by people who are travelling overseas and don't want to carry cash with them. These are often called travel cards. They can load the card with the currency they need at a locked-in exchange rate and can usually use it to make purchases online, in stores and to withdraw money at ATMs. Some cards allow only a single currency to be loaded while others allow for multiple currencies. Make sure the card you choose caters for the currencies you need.

Some airlines offer prepaid travel money cards so the money you spend on these cards can earn you reward points. Find out more about reward schemes.

For online purchases

People who shop online sometimes get a prepaid card to separate their online spending from their usual spending and to protect against identity fraud. If someone steals their prepaid card details they would not get direct access to their bank account or credit card funds.

As a gift

Some people buy a prepaid card as a gift. Unlike gift vouchers they can often be used where credit cards are accepted and are not limited to particular retailers.

Things to watch out for

Smart tip

With prepaid cards watch out for shortage fees if you have a negative balance. Withdrawing funds as soon as the card is no longer needed is one way to avoid paying extra fees.

Fees

Fees vary with different prepaid card providers but they are usually higher than you would pay at most banks or credit unions for a standard debit card tied to a bank account.

You should compare these fees to other options like paying with cash or lay-by before you buy a prepaid card. Check the fees listed on the terms and conditions of the card.

Here are some fees to look out for:

  • Fees for loading funds on the card
  • Fees for withdrawing money at an ATM
  • Currency conversion or overseas transaction fees when you use the card to buy goods overseas. (You should compare these to the foreign currency exchange rates offered by other currency providers.)
  • Fees for not using the card for a certain period of time
  • A fee for having a negative balance
  • Some merchants may add a surcharge to purchases made with a prepaid card.

Ban on excessive surcharge fees

From 1 September 2016 large businesses will be banned from charging excessive payment surcharge fees on debit, credit and prepaid card transactions. This means a business cannot charge a customer more than what it actually costs them to process a payment. These rules will apply to other businesses from 1 September 2017.

For more information see credit, debt and prepaid card surcharges on the ACCC's website.

Expiry dates

Most prepaid cards have an expiry date. Card issuers differ in how they treat funds left on cards after the card expires depending on their terms and conditions.

When your prepaid card expires the card issuer could:

  • Give you a new prepaid card with the outstanding balance, minus a fee
  • Have the funds transferred to an account nominated by you
  • Charge you a monthly fee until the funds are withdrawn or used up

For amounts over $500, after 3 years the funds could become unclaimed money.

If you think you might have funds left on an expired prepaid card you should contact the issuer to find out if and how you can access the money.

It is important to read the terms and conditions for your card to know what will happen to your funds both before and after the card expires. The expiry date of the card should be on the card itself.

Prepaid card funds are not guaranteed

Funds on prepaid cards provided by authorised deposit taking institutions (ADIs) are generally not guaranteed by the Australian Government if anything happens to the ADI. Find out more about the government guarantee.

Reloading time lag

If you are reloading your prepaid card, be aware that reloadable amounts can sometimes take a few days to register on the card, especially when you are loading them overseas. You may need to think ahead to ensure the card has the funds on it that you need in time for your purchase.

Prepaid cards are a great way to spend the money you have rather than getting into debt on your credit card, but check the fees to make sure they are a cost effective option for you.


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Last updated: 31 Aug 2016