Whether you're planning a trip to Bali or Boston, staying on a budget and keeping your money safe is essential. A prepaid debit card can help.
Prepaid travel cards function similarly to general-purpose prepaid debit cards but offer extra perks that can make your life a little easier when you're abroad. However, they also come with limitations and other drawbacks that may give the casual traveler pause.
What Are Prepaid Travel Cards?
Prepaid travel cards, also sometimes called international prepaid cards, can make spending easier when you're outside the country.
There are two primary types of prepaid travel cards:
Multicurrency prepaid travel cards. These cards allow you to load cash in specific currencies onto your card before you go on your trip, letting you lock in your exchange rate instead of paying the current rate at the ATM or point of sale.
You can then use the card wherever its payment network, such as Visa or Mastercard, is accepted.
You can't load cash with just any currency, though. Even major prepaid cards may be limited to only a handful of currencies. For example, some have only six currencies available: the euro, British pound, Australian dollar, Canadian dollar, Japanese yen and Mexican peso.
General travel prepaid cards. These cards don't differ much from traditional prepaid debit cards. However, they're more likely to offer certain features that can come in handy when you're overseas.
Examples include chip and PIN capability, emergency cash and card replacement, and international ATM use.
Not all prepaid cards have a chip though, and that can be a problem, says Quentin Telep, director of financial services for AAA National. "In many countries, especially in Europe, they've had the chip functionality for many years."
You may have difficulty using a chipless card at unmanned kiosks and other automated payment points.
[Read: Best Airline Credit Cards.]
What Are the Benefits of Having a Prepaid Travel Card?
If you're planning a trip within the U.S., you likely won't need a travel prepaid debit card. But if you're traveling internationally, you may gain some benefits from doing so.
It can help with budgeting. Sticking to your vacation budget can be tough. Traveling is a time to let loose and live a little, and it can be easy to spend more than you originally planned.
"It's a little easier perhaps to overrun the credit card when you're on vacation and you're not really thinking about how much you're spending," says Mike Clark, co-founder of PrepaidCards123, an online tool for comparing prepaid debit cards. "You may want to set aside a specific amount for your spending money while you're on your trip, and people use prepaid cards for that purpose."
You'll be protected from fraud. Prepaid debit cards are required to give cardholders the same level of fraud protection as traditional debit cards.
This means that if someone uses your card without your permission, your liability is limited to $50 if you report it within two business days of learning of the theft.
Some prepaid cards may go above and beyond this standard, providing a zero-liability policy that protects you from losing any money, even if you don't report the theft before charges show up on your account.
Prepaid cards offer a buffer for your accounts. If you're wary about using your debit or credit card on your trip, a prepaid card can help. While all three types of cards offer some level of fraud protection, it might take time to recover.
A thief who gets access to your debit card could do serious damage to your bank account right when you need funds the most. For example, you may not be able to get reimbursed right away, or it may take some time to receive a replacement credit card. If any kind of theft happens with your prepaid card, the stakes are much lower.
What Are the Disadvantages of Using a Prepaid Travel Card?
While prepaid travel cards can have their perks, watch out for some potential pitfalls, too.
They can cost more. General prepaid debit cards typically charge foreign transaction fees on purchases made in a foreign currency. And though many travel credit cards waive that fee, prepaid travel cards don't. That means you may be paying 3% on top of every purchase you make on your trip.
Even if you exchange your currency before you go with a multicurrency card, you can expect to pay a premium. For example, you may pay a fee of 5.5% to exchange U.S. dollars to an available currency.
Prepaid travel cards could be a more expensive option than other methods of obtaining foreign currency, such as withdrawing cash from an ATM at your destination. "The exchange rate is not nearly as favorable as you would even have if you prepurchase currency at a bank," says Clark.
And if you don't use all the money on the card, you may be subject to a fee to get a refund of your remaining balance.
Prepaid travel cards can also come with other costs, such as fees to load money onto the account, inactivity fees, ATM fees and even a fee to set up your account.
They don't provide rewards or perks. If you're a disciplined spender and can stick to your budget while traveling, a travel rewards credit card may give you a lot more value than a prepaid travel card. Not only do most travel credit cards charge no foreign transaction fees, but you could get access to rewards and other perks such as statement credits for select travel-related expenses, travel insurance protections, complimentary airport lounge access and more.
Most benefits aren't unique. There are some clear benefits of using a prepaid travel card when you're out of the country, but other products could offer the same benefits.
For example, both traditional debit and credit cards offer fraud protection, and you can also avoid debt by using your regular debit card. And while prepaid travel cards come with a built-in limit as to how much you can spend, it's possible to do the same thing with your checking account -- you'll just need to make sure your overdraft protection is disabled to avoid nonsufficient funds charges.
You may run into limitations. If you're hoping to get a multicurrency card, you'll only be able to use it if you're visiting a country that uses an eligible currency.
"It's kind of limited in terms of the geography where it's viable," says Telep, "and it also is really only suitable for frequent international travelers or people who are on very extended international trips."
Should You Consider Using a Prepaid Travel Card?
Prepaid travel cards may sound appealing because they're geared toward travel use. But they don't always provide more than what you get from using your regular debit card and a travel rewards credit card.
And while a multicurrency prepaid travel card sounds like it can make your life easier, you'll pay a premium to preload the currency of your choice. Credit and debit cards may assess fees, but many of them are easier to avoid than on prepaid card fees.
Some prepaid cards charge high monthly fees, for example, which may feel unnecessary if you're only using it when you travel. If you're thinking about using a prepaid debit card when traveling overseas for the forced budgeting feature, avoid limiting your search to cards that brand themselves as prepaid travel cards. Instead, also consider general-purpose prepaid cards that allow for international ATM withdrawals and don't charge a lot of fees.
"Look for a card that has a fee structure that's not going to penalize you if you only use the card two or three times a year when you're going on various vacation trips," says Telep.
You'll also want to make sure you don't run into limitations on how and when you can use your card while you're traveling.
"If I'm traveling abroad, I have to make sure that my prepaid card is going to work for both cash access and for purchases abroad," says Clark. "And you're always going to want to go with a Visa or Mastercard network because of the acceptance abroad."
[Read: Best Hotel Credit Cards.]
Consider Using a Mix of Payment Methods
Instead of focusing your vacation spending on just one form of payment, consider using more than one. For example, a travel rewards credit card may be best for most purchases because you can avoid the foreign transaction fee and earn valuable rewards on each transaction. Then use a traditional or prepaid debit card to withdraw cash from ATMs, since credit card issuers will charge a cash advance fee on these transactions.
By having multiple payment options, you can judge which one is the best every time you need to make a purchase. It can also help if one of them gets stolen. While some credit cards and prepaid debit cards offer emergency cash and card replacement services, having a backup ready to go can be a major stress reliever.
Whatever you do, take some time to compare your options to make sure you're getting the most value out of your trip.