There's too much risk of losing all your money, explains the founder of the MoneySavingExpert.com.
They are vastly popular as presents and yet they come with a sting in the tail. Now Martin Lewis, founder of the consumer website MoneySavingExpert.com , is advising people to avoid gift cards and vouchers this Christmas because of the risk of losing all of your money.
"They're just a promise from a company, but if that company goes bust or changes hands you've no rights," he said. "Remember too that one of the ways that companies make money from vouchers is that many remain unredeemed."
The problems with gift cards and vouchers were highlighted again last week when JJB Sports announced that it would appoint administrators. The shops are likely to remain open, but, with the company changing hands after the administration, those left holding gift cards will find that they cannot spend them.
Anyone who is thinking of buying gift vouchers for a birthday or Christmas present this year should read the following carefully.
= Gift card holders have no rights if a company goes bust =
As JJB cardholders will find, if you have a gift voucher and the issuing company goes into administration, you are effectively left holding a useless piece of plastic.
Voucher-holders' money is not ring-fenced or protected if a company goes bust. Instead, you will be classed as creditors and by law must take your place alongside everyone else owed money by the failed company. Since voucher-holders are unsecured creditors, they usually find themselves at the back of the queue.
JJB (LSE: JJB.L - news) cardholders will take little comfort from the fact that they are not alone. Those with gift vouchers from Zavvi, Peacocks and Game have all recently found themselves out of pocket. In the current economic environment, there are likely to be more company failures in the coming months.
Andrew Johnson, director of the Gift Cards & Vouchers Association (GCVA), said the association would like there to be a change in the law so that this situation did not arise. "It's a symptom of insolvency law, not the fault of gift card providers," he said.
= Your gift card can expire without being spent =
In recent years the traditional paper gift voucher has been increasingly replaced by plastic cards that are "loaded" with the amount of cash spent by the gift giver.
Most providers have used this switch to put an expiry date on the cards, although this date is often not printed on the card itself.
There may be a validity period on the card for example, 12 months but many people lose track of when they received the card (and some buying these presents may buy them weeks, if not months, in advance). Some retailers allow you to check online whether the card is valid or not, and the GCVA said this was best practice, but many do not have this facility. Retailers say expiry dates help them with their accounting, but consumers can end up out of pocket.
= Millions of pounds' worth of gift vouchers go unspent each year =
You might get a warm glow out of the fact that you have given your aunt £30 to spend on a new scarf, but if it is on a gift card she may well never do so. According to the GCVA, 6pc of all vouchers go unspent. Given that £4bn of gift cards and vouchers are bought each year, that's £240m annually sitting on people's mantelpieces or in their bottom drawers.
Mr Johnson said the main reason for this was "consumer apathy". Another problem is that if your aunt ends up buying a scarf worth just £27, she may not bother to go back and spend the other £3 later.
= Gift cards stop you from shopping online =
In some cases it is possible to use a gift card in a retailer's online store, but in many cases it is not. Mothercare (LSE: MTC.L - news) and River Island, for example, do not allow you to use gift cards online. In some cases a department store may not allow you to use gift cards within its franchises.
= You have no rights if you lose a gift card =
Some new gift cards allow you to register them, which gives you some rights if you lose them. However, the majority are still as unsafe to post to a friend as a present or a £50 note. If someone else takes them, or you lose it, you cannot get this money back.
= You cannot return a gift card =
With gift cards you have to spend the money in the store that has been chosen for you by the gift giver. The cards cannot usually be exchanged back for cash.
= Despite all the above, gift cards and vouchers remain popular. =
Mr Johnson said: "It shows you have given some thought to the gift. There is something very cold about just giving cash. A voucher is more personal and shows that you have thought about a store they might like."
Mr Lewis remained unconvinced. "If you are giving a gift, then cash is the ultimate rewards point scheme. It can be used on anything."
Bear that in mind when you consider this year's Christmas shopping.