Image Credit: Supplied

London: Prepaid 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.

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.

In the UK, Nationwide's debit card, which used to have no charges for foreign usage, worked out cheaper than the prepaid cards. It was and still is more convenient.

But last year, the savings provider began imposing a 2 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 prepaid card than my debit card.

Consumer group Which? recommends prepaid euro and US dollar travel cards issued by Caxton FX (www. caxtonfx.com) and My Travel Cash (www.mytravelcash.com).

They are free to obtain, and don't charge the holder for withdrawing cash from overseas ATMs.

Exchange rates

I calculated how much it would cost to take out ¤500 (Dh2,653) in five lots of ¤100 using the two prepaid cards and my debit 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 debit card.

The reason the saving wasn't greater was that the exchange rate Caxton FX was offering on the day was worse than the debit card'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.

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 prepaid card, got my PIN, and was ready to go.

But before you follow suit, there are points to consider.

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 prepaid 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 prepaid 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 prepaid card, but I wouldn't recommend it because you'll pay a foreign-exchange mark-up on each transaction.

The exchange rate on prepaid 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.

If your card is lost or stolen, your money should be safe and you can get a replacement card, though you may have to pay for it.

Though you can make overseas purchases in shops and pay hotel and restaurant bills with prepaid 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. And don't use any credit card at a cash machine, as you'll be hit with hefty interest charges.

Watch out

  • 2.75%: exchange rate transaction fee on NatWest cards
  • £2: NatWest's minimum fee on withdrawals

— Daily Mail