The pros and cons of payment cards

Payment cards have their uses but are they really any improvement on credit and debit cards, asks Paul Lewis

Billed as the travellers cheque for the plastic age there is a new sort of plastic card that wants to look after your foreign currency needs. They are called payment cards and although they look and feel like any other plastic card they are different. Very different.

With a credit card you spend money now and pay it back later. It’s a “pay in future” card. With a debit card you spend money now, full stop. When you take out cash the money comes out of your current account almost at once. It’s a “pay now” card. But with a payment card you pay before you spend. You top it up with money like a little money tank. When you spend you take the money out of that tank to buy things or take cash out of an ATM.

Your plastic will be branded MasterCard or Maestro (there are far fewer Visa payment cards) and accepted anywhere that shows those logos. The retailer will not usually know if it is a payment card or a debit or credit card.

In theory payment cards are a good idea. You can never break your credit limit – you don’t have one. You can never tip into overdraft – the money is already there. The problem is the cost. Used wisely credit card and debit cards can cost you nothing or even save you money. But there are dozens of moments when a payment card might charge you.

You can be charged when you open your account, charged when you top it up, charged when you spend money, charged when you take out cash, charged when you go abroad, charged if you close your account, and charged if you don’t use it for 12 months. Read the terms and conditions very carefully.

Some offer a dedicated dollar or euro card. When you load it up with those currencies you gain a good exchange rate for the pounds you pay with. Some promise a “better rate” than other exchanges.

Although you will get more currency than if you turned up with cash at an exchange office, the rate is often not as good as the standard rate you would get if you used your credit or debit card abroad, though those still have to be used with great care. More on that next month.

Paul Lewis is a freelance writer. He presents Money Box on BBC Radio 4