American Express prepaid travel cards are no substitute for credit cards.

American Express has introduced a prepaid travel card as a way of allowing travelers to access cash when traveling. The main advantage is that the card is not tied to any bank account and if lost, will be replaced within 24 hours. Users "load" the card with dollars or foreign currency and then, while traveling, use it to get cash at ATMs or banks or to purchase goods and services. Not only are some users reporting a shortage in the number of places where the cards are accepted, but there are also several fees involved:

  • Activation fee: $14.95
  • Reload fee: $5.00
  • Foreign exchange fee: 3%
  • ATM withdrawal fee: $2.50
  • Printed monthly statement: $5
  • Overdraft fee: $15
  • Refund fee: $10

Let's say you want to take $2,000 to Europe on a prepaid travel card. Assuming an exchange rate of $1 equals $1.20, here's what it's going to cost: to load your card with $2,000 you'll need $2,400 (the maximum is $2,750), plus the $14.95 activation fee, plus the 3 percent, $72 foreign exchange fee, plus $2.50 for each ATM withdrawal. If you make four ATM withdrawals during your trip, the cost to access your own money is $96.95. The card has an expiration date, and if after that date, you haven't used all the funds loaded into it, Amex will charge you $10 to issue a refund. In addition, certain types of purchases—gas at an automated pump, for example—are prohibited.

Our advice remains unchanged: to obtain cash overseas, get an ATM card from a bank or credit union that charges no fee for overseas withdrawals. That way the charge to access the same $2,000 is zero instead of $96.95. Even the ATM cards of Wells Fargo and Bank America, which charge $5 per overseas ATM transaction, are a better deal than this new Amex product. And even though most add a 3 percent charge for foreign transactions, for larger overseas purchases we still like credit cards. You can accumulate miles, and for a few weeks you get to use somebody else's money.