Prepaid cards safer for travel

With identity theft and credit-card fraud making headlines these days, travelers are on high alert when it comes to financial transactions. Here's one way to relieve the stress: prepaid card accounts.

Both MasterCard and Visa now offer credit-free variations on their traditional cards. Sold in either preset denominations or as personalized, reloadable accounts, these cards function much the same way as regular credit/ATM cards. They can be used to make purchases wherever Visa and MasterCard are normally accepted — stores, restaurants, hotels, for example — and they work in ATMs to withdraw cash or foreign currency. They also can be used to make deposits for rental cars and hotels.

If lost or stolen, these PIN-protected, prepaid cards are relatively risk-free. They are easier and less expensive to obtain and use than traditional traveler's checks, provide better exchange rates and are more widely accepted.

One reason these cards are safer than other forms of plastic is because they contain only as much value as was deposited beforehand. Prepaid cardholders have zero liability for loss or fraudulent use and can get reimbursed for funds they lose. Some cards also offer emergency-assistance services and baggage-loss protections. Finally, because prepaid cards are not linked to a customer's other accounts, there's no chance for a thief to use ill-gotten data to access other financial records.

Prepaid accounts are much simpler to open, requiring little of the application anxieties, formalities or credit-worthiness of charge or debit accounts, even for people with bad credit records. Accounts can be opened for as little as $250 worth of value, and some can go as high as $9,000.

And for undisciplined spenders, these cards provide a kind of check and balance — you can spend only as much as is on the card, until you add more.

Although these accounts typically don't entail any annual or monthly fees or interest charges, their convenience does come at a cost. Merchants pay the same 3 percent or 4 percent transaction fee as for credit cards. Cardholders may pay a one-time activation fee for the account that ranges from $5 to $15, and a few dollars more every time money is added to the account. Banks also deduct $2 when cards are used to get cash from ATMs, and $1 more when the cards are used overseas. You'll pay a fee of 3 percent on all international transactions.

There are also limits on how much money can be added or withdrawn at a time. Furthermore, there may be charges to call and check how much balance remains on the card, although most offer that information free online.