Currency exchange cards: a good deal?

Many of us have already put off plans to visit the Eurozone or the States due to punitive foreign exchange rates, but there is one way you can minimise the damage to your wallet: seldom heard-of but increasingly attractive currency exchange cards.

What are they?

A relatively recent introduction to the card market, these cards allow you to upload a chosen currency on to a plastic card at a set exchange rate to spend whenever you see fit at the destination of your choice.

Applications can be made to providers online and funds can be uploaded at any time via the internet, phone or, in some cases, via SMS services. The cards are currently only available in individual currencies: the dollar, euro and pound.

What's the advantage of these things?

First of all, these cards have a much better exchange rate than traditional Bureaux de Change on the High Street. The rate is also fixed when you load money onto the card, so you know what you are spending every time you use it abroad; debit and credit cards use a real-time exchange rate every time you make a transaction, which makes tracking your spending difficult.

Is that all?

No. Unlike credit or debit cards these cards do not carry a foreign currency exchange rate fee, an extra levy of approximately 2.75% which some providers add on to the exchange rate.

These debt and credit cards may also have a similar till charge when paying in shops and restaurants, but there is no such charge with a currency exchange card. Debit and credit cards also have high cash withdrawal rates, but as the money on a currency card is prepaid and not borrowed, these rates do not apply.

Great. So what are the drawbacks?

Well, obviously the cards have to be loaded with money before you travel, which means saving for a holiday rather than relying on credit. In these times, however, is that such a bad thing? A minor drawback is these cards charge for ATM withdrawals, but the plus-side to this is the fees are much lower than debt or credit cards.

For example, RBS and NatWest have a 2% withdrawal fee, which equates to a €6 fee for every €300 you withdraw. In comparison, currency exchange cards can charge €1.50 to €3.75 (the highest) for withdrawing any amount from an ATM.

The real drawback to these cards is they carry a fee if you use the card for a transaction in a different currency to the one in which it was issued; for example, if a dollar transaction is made on a euro currency card, it could carry a fee of up to 2.75%. However there are some cards that do not levy this fee (see below).

One final thing to note is these do not afford the same protection as a credit card under the Consumer Credit Act: if you buy faulty goods worth between £100 and £30,000 on your credit card, the card provider must bare the brunt of the cost. There is no such protection with a prepaid card.