Gift vouchers: perfect presents or potential pitfall?
Many people prefer buying gift vouchers or cards to giving cash for birthdays or at Christmas.
It's convenient, more secure than putting cash in the post and cleverly skirts the risk that you'll buy something that will end up discarded along with the Christmas tree or birthday candles.
But do vouchers really make such perfect presents?
Nightmare on the High Street
Gift cards tied to a business that gets into financial difficulty are at risk of being temporarily suspended by administrators or worse, declared invalid.
Two recent high street casualties, Comet and JJB Sports both suspended gift vouchers and cards after entering administration.
The problem is particularly acute when large retailers such as Woolworths, Zavvi or Habitat get into trouble.
An estimated £10 million worth of vouchers were left worthless after Woolworths entered administration in 2008.
In this scenario you may find that gift vouchers really won't be worth the paper they are printed on and top-up gift cards will only be useful for removing frost from your car's windscreen.
When a retailer goes into administration, holders of gift vouchers are classed as "unsecured creditors" and normally told to join the back of a long queue, the front of which they may never end up reaching.
Got risky gift cards?
If you have already bought gift vouchers for a retailer who is in financial trouble, the best way of protecting yourself against any potential loss is to spend them as soon as possible.
An alternative is to steer clear of retailers who are making the front pages of the business section for all the wrong reasons.
Most gift vouchers and electronic gift cards have expiration dates.
Choose conducted a quick poll of some major high street brands and it seems that most stores offer 24 months validity for gift cards from the date of purchase or most recent transaction.
Expiry date fast approaching but can't find anything you want to buy? Checking the balance of a gift card also counts as a transaction, so you can extend the validity period even if nothing in the store takes your fancy.
While it may seem unfair that a company can take your cash, give you a gift voucher in return but then take it back again if it isn't used within a specified time, this is the manner in which nearly all gift card and voucher schemes operate.
Some retailers are fairer than others and it will be no surprise to hear that John Lewis sells its gift vouchers with no expiration date at all.
Tesco also offer a good deal with gift cards giving a validity period of five years from their last use.
High street behemoths Next, Debenhams, Boots, Primark, Topshop/Topman, H and M and Marks and Spencer all operate voucher schemes with a two years validity period from their last use.
The big downside of high street gift cards is if you lose it, or if it is stolen you stand little chance of getting your money back.
One way to protect yourself against this is to purchase a prepaid gift card from one of the big three credit card providers.
One solution: 'spend anywhere' cards
The big benefit that these cards have over store specific gift cards is that if your card is lost or stolen, it is possible to call the issuer and cancel the card.
They are also able to issue a new card with any remaining balance transferred across.
The three major credit card processors, Visa, Mastercard and American Express all sell gift card versions of their plastic which work in an identical way to gift cards bought for a specific shop.
The major difference is that you can use the card almost anywhere: shops, restaurants, bars, anywhere that displays their logo in the window.
However, whilst this type of card gets top marks for convenience and security, there are some drawbacks when it comes to the f-word.
That's right, fees.
Prepaid gift cards such as these charge a range of fees for different services, all of which eat into the cash initially loaded onto the card, effectively reducing the value of your gift.
For example, at the time of writing, the Visa gift card reseller 3V sells cards that are valid for 12 months only and during months 9, 10 and 11 charges a fee of £2.00 a month for what appears to be no apparent reason.
If you would like to transfer a balance to another card before the expiry date passes it will charge a £1.75 fee.
Similarly, as we publish this article, American Express don't levy any fees on the recipient but do charge the purchaser of the gift card a non-refundable "purchase fee" which varies between 12.25% for a £20 purchase and 4.45% for a £100 purchase.
The cards are valid for 6 years after the date of expiry printed on the front of the card, although after 12 months American Express charge an unavoidable monthly fee of £1.50.
Gift card top tips
All in all, vouchers and cards might seem like a slightly more imaginative present than cold, hard cash but they have their issues.
If you do decide to go for vouchers, avoid getting stung by following our top tips:
- For electronic gift cards, write down the card or voucher numbers and keep them separately from the electronic gift card, in the event of loss or theft, it might be help you recover some money from customer services.
- Remember that if a company does go out of business, gift cardholders get sent to the back of the queue as unsecured creditors. So spend if you hear of a business in trouble.
- Although some gift cards expire after two years of inactivity, it is fairly straightforward to keep them alive by even making a balance enquiry.
- If by now we haven't put you off buying a gift card ever again, the most important thing to check before committing yourself is to read the terms and conditions thoroughly.
The alternative is to use a prepaid card from one of the "big three".
Again, though, check the small print to make sure you are aware of all the potential fees and charges that might not only cost you but also the person getting the gift.