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The most innovative and socially responsible financial product of the decade has come of age as finally there are prepaid credit cards out there that seriously undercut the overseas charges levied by their “real” credit card counterparts.

This time a year ago the best of the UK prepaid credit cards reduced their charges for things like cash withdrawals of your own money, but the move to suspend the 2% to 3% charges levied for foreign transactions on some cards comes at a great time for those off on holiday in the next few weeks.

Many people aren’t aware that just using your ordinary credit card abroad means a “fine” from the card issuer of usually around 2.75% on all your holiday spending. Credit card comparison websites have been recently highlighting these charges to their followers so people can look for alternatives, and to put pressure on the card issuers to reduce costs, but these changes couldn’t come at a better time.

The first commentators to compare prepaid cards gave them a cautious ‘thumbs up’ when they first appeared in the UK late in 2006, but many people couldn’t really see where they fitted in. In the early days, many financial journalists billed prepaid credit cards as “an expensive way to spend your own money”, and an option only fit for people with a poor credit rating.

However like many financial products, prepaid credit cards have evolved and can now been seen as a Twenty First Century alternative to cash and traveller’s cheques.

Section 75 of the Consumer Credit Act means that in the event of a problem with goods or services abroad, you’re protected in the same way as you are at home. Prepaid cards are now available to anyone over 13 years old, and many teenagers are turning to them as a safe and cool place to park their pocket money and spare cash.

Some of the prepaid credit cards for under 18’s are smart enough to not work on online gambling websites or in sensitive locations like adult only stores or off-licenses.

Add all these benefits up, and take into account that there’s no risk of running into debt as these cards offer no credit or overdraft facility, and suddenly their position in the market becomes clear.

Key advantages of prepaid credit cards?

* No chance of spending getting out of hand – with prepaid cards you’re limited to the amount you load on your card, a maximum of £15,000 with the best prepaid cards.

* Control – prepaid cards are a good way to budget for you or your kids. Like a normal credit card you get an online breakdown of spending on the card so you can see the date, amount spent and location of transactions. There are even ‘family cards.’

* Excellent for overseas travel – prepaid cards are a great option if you’re off abroad. They’re popular with students heading off on gap years and children on school trips as parents can reload them from home. Recently reduced charges make them an even better deal.

* No credit check and easy to obtain – although there maybe a small initial set-up fee, most of the prepaid cards are available very easily whatever your credit history.

Consumers are able to take advantage of credit cards that behave like credit cards. Each of these additional options have pros and cons of their own.

A secured credit card requires you to make a deposit into a savings account to obtain a credit limit with the credit card. This deposit is held as a security for the amount you purchase using the credit card. In the event that you fail to make your credit card payment for whatever reason, the deposit covers your payment.

Secured credit cards are good for those who have bad credit or no credit at all. It is a way to begin rebuilding your credit by demonstrating that you can make timely payments. From the creditor’s perspective, the deposit you pay decreases your credit risk, so the credit feels comfortable extending credit to you.

Debit Cards

A debit card is directly linked to your checking account. When you use your debit card to make purchases, it is similar to using a check. The amount of the purchase will be deducted from your checking account within one to three days.

There are two kinds of debit cards: direct and deferred. A direct debit card requires a personal identification number (PIN) to be used when you make purchases. Purchases made with a direct debit card are subtracted from your checking account almost immediately. A deferred debit has a Visa or Mastercard logo and requires a signature for purchases. In many cases, both the direct and the deferred debit functions are present on the same account.

Prepaid Credit Cards

A prepaid credit card is a hybrid of the secured credit card and the debit card. With a prepaid credit card, you load a certain amount of money onto the credit card. Normally, this is anywhere between $10 and $1,500. The amount of money you load onto the account is the amount you are able to spend. Each time you spend money using a prepaid card, your available amount is reduced by the amount you have spent. For example, if you have $1,500 on your prepaid credit card and you spend $100, you then have $1400 available to spend.

One of the benefits of a prepaid credit card is that there is no interest rate on purchases you make. Since you are spending money that you’ve loaded onto the card, the card issuer has not extended credit to you. It is also easy to manage a prepaid card because you cannot spend more than you have put onto the card.

Prepaid credit cards also have their drawbacks in hefty fees charged for the credit card. Application fees, monthly maintenance charges, fees for adding and withdrawing money, and overdraft charges, are just a few of the charges that come along with using a prepaid card.

Each of these kinds of cards has their advantages and disadvantages. If you are shopping around for a card, weigh the pros and cons to make the best decision for your purchasing habits.