Martin Lewis says millions of low income families are wasting cash with prepaid cards – how to avoid fees
MARTIN Lewis has issued a warning for families using prepaid cards that they often come with expensive and unnecessary charges.
He urged people to consider whether a basic bank account might be a cheaper way to deal with day-to-day spending and paying bills in this week's MoneySavingExpert newsletter.
Martin said that his advice was aimed particularly at lower-income families who often use prepaid cards as they don't think they can access a traditional bank account.
But they could be eligible for a basic bank account from a big bank, which is like a stripped back current account, and avoid paying the fees that come with many prepaid cards.
For instance, you'll pay £10 per month at ThinkMoney or £2 per month at Pockit with added 99p charges for use cash machines or paying bills.
He said: "Sadly there are still a million people unbanked in the UK - usually on low incomes. In recent years a range of easy-to-get prepaid cards have filled the gap, but they can charge hefty fees.
What is a basic bank account?
A basic bank account is designed for people who have experienced serious financial difficulty and don't qualify for a standard current account.
This could be due to county court judgements, bankruptcies or if you haven't built up enough credit history.
It acts like most standard accounts so you can pay in and take out money and set up direct debits to cover your bills.
Most importantly, you can use it to receive your wages and benefits.
Many providers will give you a debit card to use too - but with one major difference.
Because they're designed for customers who have experienced serious money trouble before, most of them don't offer an overdraft facility.
This makes it important to check your balance regularly, especially if you set up regular payments as you could be charged extra if you miss a payment such as to a loan provider.
"Some have chosen these accounts deliberately for functionality, but my focus here is on those who did it as they felt they couldn't get a free bank account."
Martin said that anyone using prepaid cards for this reason should check out whether they can open a basic bank account instead.
He added: "Do you pay to bank with Thinkmoney, Pockit, Monese, Vox Money, MoneyMona or other prepaid card accounts? If so, I'm worried you may be wasting your money."
What is the difference between a prepaid card and basic bank account?
Basic bank accounts are designed for people who don't have access to current accounts, usually because they are on lower incomes and have a poor credit history.
A comparison website can help you find the best basic bank account.
It's worth shopping around, because while there are rules that all banks must follow, some providers may offer extra features such as a contactless debit card, online banking, apps or spending alerts.
How to apply for a basic bank account
Anyone can open a basic bank account, but you'll still need to pass basic security measures to prove who you are.
The only exception is if you have a history of fraud - in which case you can still be barred from having an account.
This will usually be something like your passport or driving licence - but bills or documents and letters regarding benefits might work.
It's best to speak to the bank in question to find out exactly what they will and will not accept.
If you're applying over the phone or in a bank branch, it's important that you make it very clear you want a basic account or you will be steered towards a current account with more stringent qualification criteria.
Martin explains in his newsletter that people usually get directed towards a current account, even if they explain that they've got poor credit record,
This means people end up getting rejected and thinking they aren't eligible for an account with a traditional bank.
There may still be fees for using your card abroad or foreign currency charges though so check with your provider.
Halifax will pay you £100 to switch bank accounts.
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