Are you planning on traveling abroad? If you are and you’re yet to convert your money to the currency of the country you’re traveling to and the idea of using airport forex dealers disgusts you, then chances are you might be tempted to use prepaid currency cards during your travel. If you’re used to using online money changers such as Knightsbridge FX and you don’t know what currency cards are, they are cards similar to your regular debit or credit card with the exception that they allow users to load money onto the cards from their bank accounts and spend that money in the near future at the exact exchange rate as on the day they loaded the money.
This means that if you convert your cash to, say, the British pound from the American dollar today, and you’re traveling seven days from today, the value of the money in pounds in your currency card on the seventh day will be proportional to that of the value of the currency exchange rate seven days earlier regardless of the present rates.
On the surface this may look like a very good deal as customers can get very good money for their currencies by waiting for the appropriate time before cashing in. However, there is a reason why these cards are only issued by a few forex companies and why many haven’t heard about them.
That’s because although they may look like a very good deal on the surface, there are charges involved that can potentially erase all the savings that can be accrued by the cards.
Here are a few reasons why these cards may be more of a detriment than a benefit.
1. High Fees
This is the biggest drawback of prepaid currency cards and why they do not appeal to the masses. In general, most of these cards come with high fees. The fees are presented to customers in different structures depending on the companies. Some companies require a substantial one-off payment which they consider as an application fee. Other companies will require monthly payments to activate and keep the card active. That’s not all; companies also charge other fees (which vary) depending on the amount of cash that is pre-loaded. One company may charge $10 for cash loads of $500 and below and increase this fee amount as the amount of cash loaded continues to increase.
Some companies have different fee policies. They may prefer to charge customers only upon withdrawal or purchase of an item. In such cases the amounts may be small; however users need to exercise caution when purchasing items abroad as the charges can add up significantly. It should also be noted that, in such cases, the fees will go up if the card is used to transact business in another currency other than the one specified e.g. making a different currency withdrawal.
Other fees associated with currency cards include higher replacement fees and an “inactive” fee for exceeding a set period without using the card.
As a word of caution, if you’re planning to use these cards take some time to read the fine print to avoid other hidden charges only mentioned in the terms of service.
2. Amount Restrictions
Some currency cards have a limitation on the amount of currency you can actually load. Once you reach the maximum limit you have to wait until you reach your destination to spend some in order to reload. In countries where internet access is poor and cyber security is a major concern such cards may make it difficult to meet your wants and needs.
3. Credit Card Protection
Holders of these cards do not receive protection similar to other credit card holders since these cards are not considered to be “credit” based. When dealing with credit cards, any substantial payment for goods or services e.g. over $100 by the card holder means that the supplier of the goods and the credit card company/provider become jointly responsible, according to law, if the goods are deemed to be faulty or the service not up to par. In such cases, the card holder can request a refund and it will be awarded. This benefit, accorded by the law, is not available when dealing with currency cards. Universal legislation only covers funds deemed as ‘credit’ and this might leave currency card holders at risk especially in remote countries.