Staying in control of your finances is a massive priority for most of us (or at least, definitely should be). So for some consumers, opening a credit card is something they may be hesitant about – whether it’s because of the lure of easy credit, worry about fees and charges or a simple desire to avoid debt and unnecessary spending. However, with the prevalence of online shopping and more and more Australians heading overseas, you may find the idea of a credit card for these reasons alone worth considering. The good news is, there are alternatives to traditional credit card accounts if you just want to do your Christmas shopping online or make a deposit on a hotel.
You may have noticed Woolworths Money heavily promoting its own credit card alternative. The Woolworths Reloadable Prepaid MasterCard is an option for customers who want the convenience of being able to use their card easily online and overseas, but are reluctant to go into debt to achieve it. Instead of giving you access to a credit limit which you’ll then have to pay back (including accrued interest), the reloadable card operates in a similar fashion to a debit card, in that you’re using your own money and can’t spend funds you don’t have. This style of card is a great way for consumers to control their spending while still being able to make purchases online or pay bills easily.
The main difference between the Prepaid MasterCard and a regular debit card is that the Woolies product isn’t linked to a bank account, eliminating the worry of what could happen if your card details fall into the wrong hands. Instead, customers will need to load money onto the card themselves before it can be used – either in-store at any Woolworths, Safeway or Big W, via BPAY or internet banking as a ‘Pay Anyone’ transfer (customers are provided with a Direct Credit account number with their card to enable this).
The Prepaid MasterCard is accepted anywhere with the MasterCard logo (which is over 30 million merchants worldwide, and 1.9 million ATMs worldwide).
A definite pro for these style of cards is that they can be a convenient way for parents to allocate pocket money to teenagers and keep an eye on their spending. It’s an ideal option to give them a slight amount of independence and important money management skills, without the worry of the potential for kids to overspend.
The bad news
Woolworths isn’t the only place you can find reloadable prepaid cards – AusPost’s Load&Go prepaid Visa is a popular product that operates a similar way, and many banks offer their own MasterCard or Visa options. The thing that consumers need to be aware of is that these types of cards may come with fees for signing up, loading money, cash withdrawals – often, pretty much everything you can do with your card.
As an example, apply for a Woolworths card and you’ll pay a card issue fee of $9.95, and depending what option you choose, either a load/reload fee of $1.00 each time you add money to your card, or a $1.00 per month service fee (waived if you add $500 or more within that monthly period). If you lose your card and require a replacement, there’s a fee of $4.95 each time, and a $5.00 card cancellation fee. Using your card overseas incurs a transaction/currency conversion fee of 2.5% of the Australian dollar transaction value.
The cards also expire 3 years from the date of issue; instead of automatically receiving a new card (as with most credit and debit cards), customers will need to pay a card renewal fee of $4.95, or they will be charged an expired card fee of $4.00 each month if there are funds still available on the card.
Banks offering their own reloadable cards charge similar fees for issuing cards, loading funds and making transactions.
There may also be minimum and maximum load and balance amounts of the card – for Woolworths cards, the maximum balance is $10,000 (although we don’t recommend having that much money on a card, unless it’s for a specific purchase that you’ll make immediately).
AusPost’s Load&Go card may have an advantage as it doesn’t charge customers to load money or impose monthly service fees, but issues similar charges to banks and Woolworths for replacement and expired cards, overseas ATM access and disputed transaction fees.
Another issue that some customers may not like is that prepaid card issuers usually won’t issue you with a paper or monthly statement of transactions on the card, unlike with credit cards or a debit card linked to a bank account. Cardholders are able to check their balance online, by calling customer service, and at some ATMs (but not all). For owners of Woolworths cards, they can also ask service cashiers at Woolworths, Big W and Safeway, monitor their transaction history online or request a copy of a statement by contacting Everyday Money Customer Service.
For shoppers wanting a way to purchase online without risking their bank account details but also saving money on fees, most banks will allow you to open a secondary transaction account and link a debit card to it. Instead of using your main everyday account, you can transfer funds across to the account linked to your card when you want to use it. Although it may sound like a hassle, it’s actually no more complicated than reloading a prepaid credit card if you use phone or internet banking, and will invariably work out cheaper – you’ll find that transferring your money between accounts doesn’t usually attract fees, and most banks offer some sort of fee-free everyday account for your card to be attached to. This is something that is going to vary between financial institutions, so we recommend checking with your bank and comparing accounts to get an idea of any fees that may apply.
Another point – if you’re looking at getting a card purely for travel purposes, you’re likely to encounter overseas ATM fees if you plan to withdraw cash (typically around $2.50 per withdrawal), and currency conversion or international transaction fees for whenever you use the card (usually 2 – 4% of the transaction total in Australian dollars). Most banks offer travel cards or cash passports through affiliates such as Travelex designed specifically to make managing money overseas easier and to save on fees. Although there will still be purchase and load fees, overall you’re likely to save on foreign currency conversion charges, so it’s an option worth looking into before you travel.
So although there are definitely positives to prepaid, reloadable cards if you’re looking to safeguard your banking details and avoid debt, like any financial product it’s important to make sure that it’s right for you before you sign up. Things to consider are why you might need it (for a one off purchase, travel, or everyday use), how convenient and simple the reload process will be, what the fees are and if there are any additional costs, and if there’s a better product out there for your situation.