Stored-Value Cards: A Good Alternative to Traditional Plastic?

Still confused about the best way to pay your expenses and get cash while you’re traveling? Although conventional credit and debit cards get the most attention, they’re not your only options. You can also use stored value cards both for cash access and to make purchases.

You probably know how stored-value cards work. You initially load the card with whatever value you think you need, then use up that value while you travel. Most currency cards are branded either MasterCard or Visa, so you can use one as either a debit (ATM) card for cash or a credit card for purchases. And you can replenish the stored value, usually online, by additional transfers from your bank account. Card suppliers tout several security advantages:

• You never have more at risk than what you’ve loaded onto the card, so no thief can drain your bank account or run up a huge credit bill.
• You can get one for a traveling teenager without worry that he/she will spend you into the poorhouse.
• You are safe from identity theft; the card is not linked to any personal information.
• You can get one regardless of your credit history.

{{{SmarterBuddy|align=left}}}Stored-value cards have been around for a long time. In general, beyond security features, I see no real advantages over conventional plastic—other than for people who don’t have conventional plastic. However, two cards warrant additional attention.

Domestic travel. If you aren’t active in online buying, you may not be familiar with PayPal, but it’s an excellent option for domestic travel. PayPal assesses no fee for cash withdrawals in U.S. dollars from any domestic ATM, so if you need travel cash, the only fee you pay is whatever the ATM owner charges. You first establish an account with PayPal, transfer some funds into that account, and then apply for a debit card that draws on those funds. You can replenish your balance online, if necessary. The PayPal debit card is also branded MasterCard, so you can use it for credit transactions as well, but there’s no special advantage over other credit cards. And, in general, you can’t use PayPal or any stored-value card to rent a car.

Lots of other banks issue stored-value cards. Every time I’ve looked, the combination of buy-in fees, monthly fees, and replenishment fees makes them all relatively unattractive.

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International travel. You can also use a PayPal card outside the United States, but the deal isn’t as good as it is for domestic travel. For cash withdrawals in foreign currencies, PayPal assesses a two-and-a-half percent currency conversion fee plus a $1 ATM fee. Quite a few U.S. banks’ debit cards offer better deals than that. When you use a PayPal debit card for a MasterCard purchase, PayPal assesses a fee of three-and-a-half percent, again not as good as the exchange fee most banks assess and considerably more than the one percent or less you can get with some conventional credit cards.

How about a stored-value card that is already in a foreign currency? The “Cash Passport” card from Travelex, issued in pounds or euros, entails no conversion fees at all when you use it. The catch, however—and it’s a big one—is the really bad exchange rate Travelex assesses when you buy the card. As I’m writing this, Travelex charges $1,380 for a card stored with 1,000 euros, compared with a wholesale rate of $1,251. The difference amounts to a whopping 10 percent exchange loss—at least double the loss you’d face with just about any form of conventional plastic, and even worse than exchanging currency or travelers checks.

The conclusions seem fairly straightforward:

• PayPal is a good bet for domestic travel.
• Neither PayPal nor Cash Passport is a good deal for international travel. Unless you place a high value on the security features, I can’t see any reason why you’d want to go with either—you have plenty of conventional plastic options that are a lot better.

Your Turn

Do you use stored-value cards when you travel? What other ways do you carry money? Share your thoughts and advice by submitting a comment below!