Dubai: Although most credit and debit cards allow you to spend abroad, they will charge you each time you do so – and even if your card provider offers great rates, it usually adds a exchange.
On top of that, many debit cards charge a flat fee each time you spend abroad, regardless of the amount. Withdrawing cash usually incurs unavoidable charges and interest on credit cards.
UAE Prepaid Travel Cards for Your Financial Advantage
In such situations, you can take advantage of prepaid or rechargeable travel cards. These cards do not charge these fees, so you get the same rate as the bank when they process your transaction.
It’s usually a few days after you use the card, so you won’t know the exact rate you’re getting at that time. If you’re worried about currency fluctuations, a prepaid travel card can also help you lock in a rate.
How do rechargeable or prepaid travel cards work?
Known officially as “general purpose reloadables” and sometimes as prepaid debit cards or prepaid credit cards, prepaid cards are preloaded with cash. They can be used at ATMs for withdrawals and to buy just about anything in person or online, such as debit cards linked to checking accounts.
“People who don’t have a savings account, or who use them very little, were the main users of prepaid cards,” said Dubai-based independent travel consultant Richa Dev. “But the use of prepaid cards is now mainstream due to increased adoption by consumers who have bank accounts.”
People who don’t have a passbook, or who use it very little, were once the main users of prepaid cards
– Richa Dev
An illustration of costs with a travel card while traveling in London
On an overseas trip from the UAE to London, let’s say you spend the equivalent of $1,000, or about Dh4,000, at a top outlet.
Assuming five cash withdrawals of $100 (about Dh400) and 20 transactions of $25 (about Dh100) each from the cards, based on the calculated average of five travel cards, here’s how much it might cost in pounds sterling (GBP) after converting to UAE dirhams or UAE US dollars:
• Travel credit or debit card fully refunded: £818 (3,370 Dh)
• Cash via the cheapest exchange office via withdrawal in London: £821 (3,382 Dh)
• Cash from an outlet on London’s High Street: £829 (3,415 Dh)
• Use of debit card with spending fee: £872 (3,592 Dh)
• Cash exchange at the airport: £949 (3,909 Dh)
How do prepaid cards compare to credit and debit cards?
Although prepaid cards are similar to debit and credit cards, they all work differently. With a credit card, you borrow money that you have to pay back, with interest if you don’t pay the balance by the due date. To get one, you must have good credit, and using one responsibly will continue to improve your credit rating. This in turn can help you get better rates on car loans, mortgages, etc. But irresponsible credit card use 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 may be penalty charges for overdrafts. Like your checkbook, you’ll want to keep track of your balance.
With prepaid cards, you spend money that has already been loaded onto them; they are not connected to savings accounts. They work like debit cards, but you don’t need a bank account (or good credit) to get one.
You can buy the card for a certain amount, but you can add extra money to it at any time. When the balance is depleted, your card stops working unless you top it up.
A perk includes an easy-to-get prepaid card and one you can buy almost anywhere
What hidden fees should you watch out for with prepaid cards?
All prepaid cards are different and can charge varying fees, ranging from a fee for each time you use the card to make a purchase to a fee for using it to withdraw cash from an ATM.
“These charges can add up quickly, eating into the balance of money you have 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 packaging or on the card issuer’s website,” Dev added.
“Some activities your card provider may charge and a range of associated fees include – $0-$30 (Dh110) card purchase and/or activation fee, $0-$110 card reload fee $5 (Dh20), monthly service fee from $0 to $9.95 (Dh40), purchase transaction fee from $0.49 to $2 (Dh8), ATM withdrawal fee from 1 $ to $3 (Dh10), inactivity fee from $2 to $5.95 (Dh25) per month.
Dev added that some other fees include balance inquiry fee of $0.49 to $2 (Dh8), paper statement fee of $0 to $5.95 and above (Dh25), replacement fee lost card over $10 (Dh40), card cancellation fee of around $10. , overdraft fee of $15 (55 Dh).
What is an overdraft fee?
Overdraft fees are those charged to you whenever you withdraw more money from your account than you have in it. When someone’s account is overdrawn, the card issuer temporarily lends money to cover the total expense.
Other actions that may result in seemingly insignificant charges include paying bills, additional card, inactivity, stopping a payment, declining a payment, card-to-card transfer, and transaction foreign.
Main advantages of using a prepaid card
The pros and cons of using prepaid cards vary widely from card to card. Here are some things to consider when buying a prepaid card; not all cards have all the advantages or disadvantages listed below.
“Some benefits include an easy-to-get prepaid card and a card you can buy almost anywhere. It’s also easy to use and you can use it just about anywhere – with the added benefit of being comparatively safer said Sophie Cortez, regional manager of a European tour operator based in the United Arab Emirates.
“If you lose money, it’s limited. If your credit card is stolen, the thief could rack up significant charges. If you lose your debit card, a thief could empty your account. But if you lose a prepaid card, your loss is limited to the amount on the card. In addition, some prepaid cards offer protection against loss or theft.
Cortez also added that when it comes to prepaid cards, there is no credit check to get these cards. This is a plus for those with not so great credit history. It is also an effective budgeting tool. You can load your monthly grocery budget, for example, onto a prepaid card.
“Also, when you use a prepaid card, you’re spending a specific amount of money that you’ve loaded onto it, so there’s no chance of incurring debt,” Cortez explained.
Main risks associated with the use of a prepaid card
Besides the hidden fees mentioned above, another major downside is that money stored on prepaid cards does not earn interest.
“Also, prepaid cards may not be more secure than credit cards since all amounts on a credit card are protected against theft since it is not your own hard-earned money. “, added Cortez.
“Prepaid cards also do not provide a credit history boost. Prepaid card activity is not reported to major credit reporting agencies, so it does not affect your score. As such, it will not help you build your credit.
Verdict: Are prepaid cards better when traveling?
Because prepaid cards are associated with major card networks – Visa, Mastercard, American Express and Discover – they can be used anywhere debit cards can: for groceries, gas and even pay bills online. A disadvantage of prepaid cards is hidden fees.
Prepaid cards are accepted where most debit and credit cards are, so they’re an easy-to-use option when traveling. So, even if you are planning a vacation in the country, these prepaid debit cards are the best options to choose from.
When traveling abroad, prepaid travel cards make it easy to get cash in the local currency without the risk of using your own debit card, expensive credit card cash withdrawals, or the hassle of travellers cheques.
In general, however, it is more convenient and safer 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.
Results ? A prepaid travel card is not without its drawbacks, but if you want an easy way to access cash in your destination currency – and want a quick way to pay merchants once you get to your international destination – the ease of using them could make your trip less stressful.