The introduction and subsequent popularity of debit cards is proof that consumers are making the choice to move away from choosing the credit option when making their purchases. Particularly in these tough economic times more and more people are looking for ways to cut costs and tighten the budget. It may not be widely known but there is another product on the market that can help to keep an even tighter lid on spending – pre-paid cards.
What’s the Difference?
Most of us are familiar with “gift cards” which operate in a similar way. There is a set amount of available credit on the card and you cannot access any more than what is preloaded in value. These types of cards are known as a “closed loop” card as you can usually only use the card in nominated stores. They are also “disposable” as once the credit balance has been used up the card is thrown away.
The new type of pre-paid card, that has actually been in use in Australia for a number of years now and is gaining in momentum, is an “open loop” pre-paid card. These cards are able to be continuously “topped up” when the credit runs out and are able to be used at a range of retail and service stores, much like a credit or debit card.
These cards are perfect for a large section of the population for various reasons. For example, if you are not able to qualify for a credit card or do not have a bank account you can still use a pre-paid card as it is not linked to any line of credit application or deposited funds and can be topped up over the phone or on the internet. For this reason there are also added security benefits for consumers, particularly travellers, as there is no personal information stored on the card. So if it is lost or stolen there is little risk of fraud. Additionally, if lost or stolen most reloadable cards can be cancelled similar to a credit or debit card.
One thing to be aware of though is to check the fine print in relation to associated fees and costs. Some vendors may charge application and/or transaction fees and other service fees such as balance enquiries. It is also important to confirm that the card is actually reloadable when you purchase it.
The cards are quite flexible in their application and can be used according to various consumer requirements. For example, it can be used to provide a weekly allowance to children. This teaches them to operate on a set budget and will ensure that they do not get out of control with their spending. It can work well for travellers, allowing them to only have access to the funds that they have loaded on to the account, or mum and dad can deposit a set amount every week to help with the travel expenses. Individuals could also use the cards to help them stick to specific budgets for various areas of spending. They could have one card for clothes and shopping and one for holidays. By having a set regime where you only top up each card with a set amount every month you are forced to stick to your nominated budget.
Whilst not all retailers currently accept the pre-paid cards it is hoped that over time awareness and acceptance of the cards will grow and see them a regular part of our purchasing culture.
At The Quinn Group our team of accountants and financial planners are able to advise you on the best ways to cut your costs and stick to your budget. If you would like personalised advice and strategies on how to improve your financial situation please click here to submit an online enquiry or call us on 1300 QUINNS.