My last post about the Monzo card has created quite a lot of interest so I thought a quick follow-up post might be helpful for two reasons:
Firstly, to dispel the notion that I’m advocating one particular prepaid card – Monzo just happens to be the one that my son and his friends introduced me to. There are quite a few others.
Secondly, to encourage you to think about prepaid cards as a commonplace thing, already widely used by many people.
Research shows that our fast ‘Type 1’ thinking steers us away from anything novel. We instinctively distrust anything new until we hear about lots of other people who have adopted it. This is a good survival instinct – I’m sure we can all think of examples when we’ve been offered a good deal but we hesitate because it just sounds too good to be true.
But the more times we hear something mentioned, the more comfortable we get. So if you’re still not sure about prepaid cards, read on …
Jam Jar Banking
Thinkmoney offer a managed current account linked to a prepaid Mastercard. This operates exactly like the BILLS/SPENDING Jam Jar system I described in an earlier post. A money manager helps you over the phone to work out how much you need to leave in your BILLS account and how much to transfer to your SPENDING card. For this they charge £17.50 per month, or £24 for a joint account.
This product has been around for about 10 years, and is aimed at low-income households and at people who have had difficulty in managing their finances. It has been independently assessed and awarded a four star rating (out of a possible 5) by the Fairbanking Foundation – see this link: http://fairbanking.org.uk/fairbanking-marks/current_mark_holders/ Fairbanking is a charitable foundation that encourages banks to develop products with features that promote financial wellbeing.
Despite the fee that Thinkmoney charge, users rate this product very highly. For many people £24 a month is not a high price to pay for peace of mind and a friendly money manager you can talk to on the phone.
Other prepaid cards and what they are used for
Travelling abroad: there are scores of prepaid cards that allow you to load up the card with foreign currency before you travel, and then spend it like a credit card when you are abroad. They all charge fees, and can be quite low-tech. Examples are ICE, Caxton FX and Post Office. This is what prepaid cards were most commonly used for, until the launch of cards like Monzo.
Pocket Money: GoHenry and Soldo offer prepaid cards for children of 8 and over. These feature extra parental controls over how the cards are used, and can be a good way to teach your kids about money and allow them to safely spend their pocket money online. My grandchildren have GoHenry cards. This helped to persuade me that a prepaid card might be a good way to control my own “Type 1” behaviour!
Students: Loot is a prepaid card that was originally launched by a student for students. Like Monzo, Loot is an app-only products, which means you can only use them via a smartphone. And the app has built-in budgeting features designed to help students (and others) to manage their precarious finances.
The rest: Pockit, Cashplus and U also offer prepaid cards, and compete with Loot, Monzo and others I haven’t mentioned. Fees for prepaid cards vary a lot and can include a monthly fee, plus transaction fees for withdrawing cash from an ATM and for transferring money onto the card from another debit card. The level of fees seems to be falling as more new cards are launched, but fees can be higher on some of the older products.
So what’s new?
Prepaid debit cards aren’t new – they’ve been around for years. But a new wave of banks and card companies are now combining this old product with clever new apps and the latest digital-era technology available on smartphones. It will be interesting to see how the old banking behemoths – Barclays, Lloyds and NatWest – eventually respond.