The Hindu Business Line : Prepaid cards: Credit made easier

YOU ARE probably familiar with credit and debit cards. Now know the latest kid on the block — prepaid cards. Sold as a gift card by a few banks, it can be bought over the counter by paying cash or cheque for the amount loaded. The card can be used like any other plastic money, in merchant locations that accept Visa cards. It can be used any number of times till the loaded amount expires and is valid for a certain period, usually one or two years from date of issue.

The greatest advantage of prepaid cards is that you don't need an account with the bank or have a credit track-record. You can buy it over the counter at any branch of the issuing bank. The card is activated when the bank receives the money.

You can gift the card for an occasion or give it to your children who may not be eligible for other forms of plastic money. Unlike gift vouchers that can be used only in specific outlets, the card can be used across a wide range of merchant locations such as restaurants or retail outlets.

Upfront charges

The card comes with an upfront cost, irrespective of the amount loaded on to the card. The fee could be Rs 100-150 per card. Oriental Bank, however, does not have an upfront fee. IDBI Bank has a festive offer of Rs 56 per card valid till January 31. As the loaded amount increases, the upfront cost falls. Say, you want to buy a card for Rs 500 usage value. At Rs 100 per card, the charge works out to 20 per cent — a huge price to pay for a gift! The card is suitable only for higher denomination gifts of, say, at least Rs 5,000; the cost would then work out to two or three per cent.

Card vs cheque

A prepaid gift card is an alternative to a gift cheque or a cash gift. A gift cheque is suitable for lower denomination gifts, a card might be a better option for higher denominations, as it offers more convenience. A gift cheque could cost you 2-5 per cent of the cheque value, depending on the amount of the cheque. A card can cost you less than three per cent if the loaded value is in excess of Rs 5,000.

A cheque has to be encashed before six months. A card can be used for an extended period of one or two years and can also be used multiple times as long as it does not exceed the card value.

What you can and canot do

Cash withdrawal is a no-no. Most cards do not allow drawal of cash from an ATM.

You can access the ATM to check your balance and get a mini-statement that gives you details of the last eight or 10 transactions, depending on the bank. This service is free.

If the card is lost, you are in trouble. Some banks, such as HDFC, reissue the card for an additional charge. But others do not issue fresh cards. Not just that, you might have to pay an additional charge to get the balance in such case. Moreover, communication is always with the original buyer and not with the person holding the card.

Most banks allow a top up on the original card at an extra charge. HDFC does not offer this facility. The top up can be done anytime before the expiry of the card. If the maximum permissible value on a card is Rs 25,000, total amount after the top up cannot exceed this amount.

Oriental Bank offers a free add-on card also with the prepaid card. Say you've gifted your wife a Rs 20,000 prepaid card. You get an add-on card, which you can give to your son. The spending limit on both cards should not exceed Rs 20,000.

Check out those extra charges

Apart from the upfront charge you incur on buying the card, there are other charges that you might incur.

A recharge fee, if you want to load additional amount on the card.

An account closure charge if you do not spend the money and want a refund of the money.

A charge for reissuing a lost card.

A charge on new PIN requisition.