Beware risks of prepaid travel cards



When Bob Carlson, a software developer from Eugene, Ore., took his family to Europe last June, he loaded 2,000 euros -- the equivalent of about $2,425 -- onto a prepaid American Express Travelers Cheque card with the expectation that he would use it to get cash while traveling.

Three weeks later, Carlson returned home, frustrated that he was unable to find many ATM machines or merchants that would take the card. "Every machine I tried to use with my [bank] debit card worked," he said. "The ones that took the travel-funds card were few and far between."

Making matters worse, the card couldn't be used to get cash at American Express offices the way he might with regular traveler's checks. When he did find an ATM, he found there was a limit on how much he could withdraw.

"I wasn't able to do enough transactions to get all the money off the card," he said. Carlson came back with 250 euros left on it. "I've still got it in my pocket."

With banks raising their fees for using credit cards and ATMs, travelers such as Carlson are more confused than ever about the best way to obtain cash and pay for hotels and merchandise.

No bank-account link

Now along comes a marketing push for the prepaid travel cards - the Travelers Cheque card from Amex and the Visa TravelMoney card. (MasterCard doesn't offer a prepaid card in the U.S. but plans to introduce one this year.)

Both are designed to be used anywhere Visa and Amex are accepted, including ATM machines. The theory is that they eliminate the hassles of carrying cash or traveler's checks, and, unlike debit or bank-issued ATM cards, aren't tied to a bank account.

My guess is that not everyone will wade through the pages of "terms and conditions" attached to using these, but those who do are likely to conclude, as Carlson did, that these are cards you can afford to leave home without.

Amex says it's now possible to obtain cash with its cards at its offices worldwide - a change in policy since the time Carlson traveled. Both cards, however, come with a long list of fees - essentially charges for using your own money - and some restrictions on where and how they can be used.

Those without a bank account or credit card, such as students, or people who need a self-imposed limit on their spending might find them worth the cost, but for most travelers there are better alternatives.

Amex/Visa differences

Regardless, anyone who might be considering a prepaid card will want to note important differences between the Amex and Visa cards. One of the largest sellers of the Visa money card is the American Automobile Association, which offers it through a partnership with London-based Travelex. AAA's terms and conditions are more favorable than those of most banks that also sell the card.

American Express charges a $14.95 "activation" fee to initially load cash onto its Travelers Cheque Card ($300 minimum, $2,750 maximum), plus $5 for each reload.

Visa's fee on the AAA TravelMoney card is $4.95 for members and $9.95 for nonmembers, with three free reloads ($250 minimum, $1,500 maximum if purchased by telephone or online; $9,999 maximum if purchased at a AAA office).

The Amex card can be loaded in U.S. dollars, euros or British pounds at a conversion fee of 3 percent over the official exchange rate (the interbank rate published in daily newspapers or available on sites such as The Visa card is available only in U.S. dollars.

Both cards can be used to make purchases anyplace that accepts Visa or Amex, and to withdraw cash from ATM machines, but both place limits on the amount you can withdraw per transaction, and levy withdrawal fees - $2.50 for Amex; $2.50 for Visa in the U.S., $2 elsewhere.

Many banks also charge ATM withdrawal fees, but savvy consumers can avoid these by using a cash card issued by a credit union or a bank that doesn't. (More on this follows.)

Conversion fees

Perhaps the biggest pitfall of the AAA Visa TravelMoney card is the foreign-currency conversion fee. If you use the card to withdraw cash or make a purchase in another country, including Canada and Mexico, you will pay a 7 percent surcharge over the official exchange rate. American Express adds 2 percent.

The highest foreign-currency surcharge levied by any U.S. bank is 3 percent - 2 percent for the bank plus a 1 percent processing fee charged to the banks by Visa or MasterCard and usually passed on to customers. With the exception of that 1 percent fee, consumers can avoid paying anything more by using cards issued by credit unions or banks that don't levy surcharges.

The list of fees attached to the cards goes on to include a charge for a printed monthly statement (Amex $5, Visa 50 cents), overdraft fees ($15 on each) and provisions for a "cash out" fee if you have money left on the card and want it back (Amex $10, Visa $15).

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