Ffrees: I'm saying no to the card that gives a big shopping discount

The Ffrees card is a prepaid rewards that has received some superficial press attention. Today I'm looking under the bonnet at the small print.

You can use it for purchases anywhere you see the MasterCard sign. It offers reward points called “Ffrees” that can amount to savings of 20%.

Cutting to the chase, the Ffrees card doesn't get my vote, so anyone thinking about getting the card should read this review first.

The basics

Before I get to the reward scheme, here are the vital statistics and safety aspects of the card:

• The card is free, but additional and replacement cards cost money.

• You can load money onto the card for free through internet banking, standing order, or your debit card.

• There's no fee for overseas transactions, but Ffrees doesn't use MasterCard's attractive exchange rates. Ffrees rates are not available for checking until you have a card, so I can't estimate costs. Years of research has taught me that, unless a company is open about its rates, the sensible thing to do is expect the worst: exchanging through Ffrees probably isn't cheap.

• You can withdraw cash from ATMs, but this should be avoided because of costly withdrawal fees.

• You'll pay a £2 dormancy fee every three months if you don't load money onto or spend using the card.

• The card expires in 36 months, but you'll pay a £10 cancellation or redemption fee to cancel early. You might be forced to close your card early if you make no transactions in 12 months. (Ffrees doesn't have to pay you £10 if it chooses to close your account early, which it can do for any reason with one month's notice.)

• On closing your account, if you don't ask for your money back within six years then you won't get it.

• You can be moved to a different prepaid card from a different provider, and with a different contract, with two months' notice, unless you object. Take care to read the terms and conditions carefully if this happens.

• You have to keep your address, email and telephone details up-to-date, or you might miss notices – such as that you're being charged a dormancy fee or that Ffrees has added more fees.

Safety

Those vital statistics seem like a bit of a headache to me. Let's turn to looking at safety before considering the reward scheme.

The money behind any reward “Ffrees” you receive are held on trust, which means that, if everything is done legally, they should be safe in the event Ffrees collapses.

Money you have on your payment card does not appear to be held on trust, nor is it protected by the UK's Financial Services Compensation Scheme should Ffrees go bust. However, it is covered by an equivalent scheme in Gibraltar.

The terms and conditions show that Ffrees should refund you in most circumstances if you're the victim of fraud, with your liability limited to £50, much like with debit-card fraud. You won't get your money back if Ffrees believes you have been grossly negligent, however.

However, Ffrees is regulated in Gibraltar, not by the UK's Financial Services Authority, and it's not part of the Financial Ombudsman Service scheme. If you have a dispute with Ffrees, such as you're the victim of fraud and Ffrees accuses you of being grossly negligent, you can't seek redress through the UK's Ombudsman.

The reward scheme

You earn Ffrees, where one Ffree is equivalent to £1. Once you have accumulated 100 Ffrees, you can ask for the equivalent in pounds to be transferred to your current account.

Acumulate 100 Ffrees in a year and keep them in your Ffrees account, and you get an extra two Ffrees per 100 earned. Note, this is not the same as 2% cashback, because you have to spend hundreds or thousands to get those 100 Ffrees.

Looking at this with my cynical hat on, Ffrees is a way for shops and other retailers to market their products to customers who, once they possess a Ffrees card, become an easy market. These retailers can then use all the usual tricks of marking-up a product and then offering “discounts” through Ffrees of 5%, 10%, 20%, or whatever it thinks will get customers' attention.

Such is the weakness of all rewards schemes: businesses tell customers they're getting a great deal and, amazingly, customers believe them. They end up spending more money on more products, rather than saving money and shopping around.

That said, this reward scheme might be beneficial for regular shoppers in some of the 250 Ffrees businesses. You can earn 3% in Ffrees at M&S stores, Asda and Debenhams, for example.

There is an exclusive fixed rate for buy-to-let landlords from Springtide Capital, for example, which seems like a good deal at 3.8% with maybe £1,250 in fees on a 65% LTV mortgage, but the deal only lasts about 20 months. I think most people who are fixing today should be doing so for longer than that.

The deals are also very unclear. With the Springtide Capital mortgage it says “Earn 20% back in Ffrees”, but there is no explanation: 20% of the monthly mortgage or just the arrangement fee? I asked Alex Letts, Ffrees' chief executive officer, who said it was 20% of the fee.

Another unclear example is the 3% Ffrees you can earn at M&S: does this include sale items? Letts assures me it does.

To take another example of the lack of clarity, you get 6.5% Ffrees at Pizza Express, but is that in addition to the two-for-one deals you can get for free through numerous voucher websites? Letts assures me, again, that it does.

Lots of specifics are missing from the deals until you actually sign up. It's a shame we can't see how good the rewards really are without applying for a card or contacting the CEO.

More:

The cheapest place to get a flu jab

Top credit cards for Christmas shopping

Barclaycard's cheapest ever balance transfer card is launched