The tourists who top up a lot more than their tans

Prepaid currency cards are the convenient way of spending on holiday. But is the cost worth it?

If this year's holiday plans feature foreign shores, most of us will pop into the bank, bureau de change or post office - maybe even a supermarket or high-street retailer such as some Tesco and Marks & Spencer stores - to stock up on currency.

We might also be planning to pack our plastic - both debit and credit cards - beside the suncream and sarong, as well as a handful of traveller's cheques.

But this summer, more of us are expected to try out a "fourth way" of taking cash overseas - in the form of a prepaid currency card that can be "reloaded" with money when it runs out.

Also known, confusingly, as traveller's cheque cards, they are being promoted by a growing number of providers as the "smart, easy and secure way to carry money abroad".

Among the firms offering this plastic are American Express, in the shape of its Traveller's Cheque Card; Western Union - the Travel Cash Card; Maestro - I-Travel Prepaid; and International Currency Exchange - Cash2Go.

In the latest move, Travelex is due to relaunch its Cash Passport prepaid currency card on 12 June in a chip-and-pin format.

These cards have been likened to a hybrid of a debit card and traveller's cheque: consumers get the convenience of the former and security of the latter.

To get going, you simply "load" the plastic with a set amount of currency for your destination country, and the exchange rate you get is fixed for the card's life at that point. With Travelex, the limit for one "load" is between £100 and £5,000 worth of euros or dollars.

Then, once you are overseas, a pin code lets you use the card to withdraw money from an ATM, or spend in restaurants or shops. If you're in a non-chip-and-pin country, you can just sign for goods as normal.

A prepaid card is being touted as safer than carrying conventional plastic since, if it's lost or stolen, there's no link between the funds on the card and any bank accounts. "And as they don't carry a name, they can't be used for identity fraud," adds Caroline Harbord of Travelex.

Andrew Hagger from financial analyst Moneyfacts predicts they will see off traveller's cheques. "If you lose your currency on holiday, there's little or nothing you can do about it; with traveller's cheques, you need to make a note of those dreaded serial numbers in case you lose them," he says.

"But if you mislay your prepaid card, life is much simpler as you can report it lost, get it cancelled and request a replacement [to be sent to you] within hours."

One of the other benefits, adds Mr Hagger, is that parents can load the cards and give them to their children - minimum age 16 - to take on school trips or gap-year travels. "They can relax safe in the knowledge that their child only has a predetermined balance to spend."

This might sound an attractive proposition, but there is a price to pay on top of the loaded currency itself. First, some providers levy a charge for taking out the card at the outset - £20 with Amex, for example.

Then there's the cost of using it at an overseas ATM. With Travelex's new card, there is a flat fee of £2.50; Western Union charges £2.

Next up, consider the loading fee for top-ups. Amex and Travelex don't charge for this, but tourists will pay up to £3 with ICE, Maestro and Western Union.

Amex and Western Union levy a separate foreign transaction charge of 2.73 and 4 per cent respectively when you use the card in stores and restaurants.

All but Travelex impose a fee if you need to cancel your card - ranging from £3 at Mastercard to £10 with Western Union.

Further, you can't use any prepaid card as a guarantee for car hire or for a hotel room.

Robert Kenley at price-comparison service Moneysupermarket.com says the cards have yet to take off in the UK. "They are only beneficial if the fees are understood, and if the card is used responsibly."

But he predicts more issuers will develop them over the next 12 months - leading to greater choice and competition, and lower fees. "Consumers will soon be able to compare cards from a whole raft of providers," he says. "This will ultimately help drive down prices."

Other snags will depend on the type of card that you choose, so scrutinise the small print carefully.

If you're overseas and your plastic runs out of credit, Amex lets you reload either by a phone call or via its website.

However, Travelex's card can only be reloaded in the UK, which seems to defeat the object. There is a way round this for parents who buy the plastic for their children: a duplicate that is connected to the original. So if the teenager's card runs out, a phone call can send the parent into a UK branch of Travelex to reload.

Consumer body Which? says the cost of these cards can be prohibitive, and stresses that there are better ways of taking money abroad. "You can get more value by opting for Nationwide building society's debit or credit card," says spokeswoman Rebecca Fearnley.

Most credit and debit card providers levy a foreign-usage loading fee of around 2.75 per cent on all purchases overseas, and many also charge an extra handling fee of up to 2 per cent of the transaction value at a foreign ATM.

But Nationwide does not charge a currency loading fee for its debit and credit card customers. And use its debit card at an ATM and you pay no fees at all.