Dubai: Although most credit and debit cards let you spend abroad, they will charge you whenever you do so – and even if your card provider gives great rates, it usually adds foreign currency costs.
On top of this, many debit cards charge a flat fee each and every time you spend overseas, regardless of the amount. Withdrawing cash usually attracts fees and unavoidable interest on credit cards.
UAE prepaid travel cards to your financial advantage
In such predicaments you can take advantage of prepaid or reloadable travel cards. These cards don't charge these fees, so you get the same rate the bank does when it processes your transaction.
This is usually a couple of days after using the card, so you won't know the exact rate you're getting at the time. If you're worried about currency swings, a prepaid travel card can also help you lock in a rate.
“People who do not have savings accounts, or who use them very little, used to be the main users of prepaid cards,” explained Richa Dev, a Dubai-based independent travel consultant. “But prepaid-card usage is now common due to increased adoption among those consumers who do have bank accounts.”
People who do not have savings accounts, or who use them very little, used to be the main users of prepaid cards
An illustration on costs with a travel card on a trip to London
On an overseas trip from the UAE to London, let’s say you spend the equivalent of $1,000, which is about Dh4,000, at a prominent retail outlet.
Assuming five $100 (approx. Dh400) cash withdrawals and 20 transactions of $25 (approx. Dh100) each on the cards, based on the calculated average of five travel cards, here’s how much this can cost in British pounds (GBP) after you have converted UAE dirhams or US dollars in the Emirates:
• Travel credit or debit card repaid in full: £818 (Dh3,370)
• Cash via cheapest money exchange via pick up in London: £821 (Dh3,382)
• Cash from an outlet on London’s high street: £829 (Dh3,415)
• Using a debit card with a spending charge: £872 (Dh3,592)
• Exchanging cash at airport: £949 (Dh3,909)
How do prepaid cards fare versus credit and debit cards?
Although prepaid cards look similar to debit and credit cards, they all function differently. With a credit card, you borrow money you must pay back, with interest if you do not pay the balance by the due date. To get one you have to have good credit, and using one responsibly will continue to improve your credit rating. This in turn can help you down the line to get better rates on car loans, mortgages, etc. But using a credit card irresponsibly can lead to overspending, late payments and, ultimately, damaged credit.
On the other hand, a debit card is issued by your bank and linked to your savings account. The money is yours and there are no interest charges, but there can be penalty fees for overdrafts. As with your chequebook, you'll want to keep track of your balance.
With prepaid cards, you spend money that has previously been loaded onto them; they aren't connected to savings accounts. They work like debit cards, but you do not need a bank account (or good credit) to get one.
You can purchase the card in a certain amount, but you can add additional money to it at any time. When the balance is gone, your card stops working unless you add more money to it.
A perk includes a prepaid card being easy to get and one that you can buy almost anywhere
What hidden fees should you watch out for with prepaid cards?
All prepaid cards are different and may charge varying fees, from a charge for each time you use the card to make a purchase to a fee for using it to withdraw cash from an ATM.
“These fees can add up quickly, eating away at the balance of money you've loaded onto the card. It's important to read the fine print to find the best deal. Look for information on the card, inside the card package or at the card issuer's website,” added Dev.
“Some activities your card provider might charge for and a range of their associated fees include - card purchase and/or activation fee of $0-$30 (Dh110), card reload fee of $0-$5 (Dh20), monthly service fee of $0-$9.95 (Dh40), purchase transaction fee of $0.49-$2 (Dh8), ATM withdrawal fee $1-$3 (Dh10), inactivity fee of $2-$5.95 (Dh25) per month.”
Dev added that some other fees include balance inquiry fees of $0.49-$2 (Dh8), fee for a paper statement of $0-$5.95-plus (Dh25), lost card replacement fee of over $10 (Dh40), card cancellation fee of around $10, overdraft charge of $15 (Dh55).
Other possible seemingly insignificant fee-incurring actions include bill payment, additional card, inactivity, to stop a payment, when a payment is declined, card-to-card transfer and a foreign transaction.
Key perks to using a prepaid card
The advantages and disadvantages of prepaid-card use varies widely by card. Following are some issues to consider when purchasing a prepaid card; not all cards have all the pros nor all the cons listed below.
“Some perks include a prepaid card being easy to get and one that you can buy almost anywhere. It is also easy to use and you can use them pretty much everywhere – with the added advantage of it being comparatively safer,” said Sophia Sanchez, a travel itinerary planner at a UAE-based European tour operator.
“If you lose cash, it's limited. If your credit card is stolen, the thief could rack up substantial charges. If you lose your debit card, a thief could drain your account. But if you lose a prepaid card, your loss is limited to the amount on the card. Also, some prepaid cards offer protections against loss or theft.”
Cortez also added that when it comes to prepaid cards, there is no credit check to get those cards. This is a plus for those with not-so-great credit histories. It is also an effective budgeting tool. You can load your monthly grocery budget, for example, on a prepaid card.
“Additionally, when using a prepaid card, you're spending a specific amount of money you've loaded onto it, so there is no chance of incurring debt with it,” Sanchez explained.
Key risks to using a prepaid card
Apart from the above-mentioned hidden fees, another key drawback is that money stored on prepaid cards does not accrue interest.
“Additionally, prepaid cards may not be safer than credit cards given that all the amounts on a credit card is protected from theft given that it is not your own hard-earned money,” added Sanchez.
“Prepaid cards also do not provide credit-history boost. Prepaid-card activity is not reported to the major credit-reporting agencies, so it doesn't affect your credit score. As such, it will not help build your credit.”
Verdict: Are prepaid cards better when travelling?
Since prepaid cards are associated with major card networks — Visa, Mastercard, American Express and Discover — they can be used anywhere debit cards can: to buy groceries, fill up on gas and even pay bills online. One downside of prepaid cards is hidden fees.
Prepaid cards are accepted where most debit and credit cards are, so they're an easy option to utilise when you're traveling. So even if you're planning a vacation within the country, these prepaid debit cards are the best options to choose from.
When travelling overseas, prepaid travel cards make it easy to get cash in the local currency without the risk of using your own debit card, costly credit card cash withdrawals or the hassle of traveller’s cheques.
In general, however, it's more convenient and secure to have a traditional debit card than a prepaid card. But if you're unable to open a bank account or are on a strict budget, prepaid cards may be more accessible.
Bottomline? A prepaid travel card doesn’t come without downsides, but if you want an easy way to access cash in your destination’s currency – and want a quick way to pay merchants once you arrive at your international destination – the ease of using them might make your trip a less stressful one.
