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Bank loan: Pre-paid customers not eligible for compensation scheme

Pre-paid cardholders have been warned that they may not be eligible for compensation if their provider collapses.

The cards have become popular in recent years as those who can not open traditional bank accounts can use them to pay for goods without the need for cash, while holidaymakers also find them useful overseas.

However, pre-paid cards are not covered by the Financial Services Compensation Scheme, which awards funds to customers who have lost out when their provider collapses.

Annie Shaw, finance expert, told The Sun: "As we move increasingly towards a cashless society, pre-paid cards are growing in popularity.

"I advise customers to check the provenance of the card issuer and how their money is held. And what, if any, their compensation rights would be if the card issuer defaulted."

Certain pre-paid cards such as the Caxton FX and Tuxedo card are backed by Newcastle Building Society, giving customers a chance to gain compensation.

Posted by Charles Baker

Charles is a reputed financial analyst with almost decades of experience under his belt. ADNFCR-2776-ID-800138322-ADNFCR

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