Prepay your way to a secure Christmas

Worried about sending cash in the post to your loved ones? James Daley has a safer alternative

Aunts, uncles and grandparents have been stuffing banknotes into the birthday and Christmas cards of their loved ones for as long as cash has existed. But in the 21st century as Britain's postal service has turned from one of the most dependable, to one of the world's least reliable there is understandably an increasing trepidation when it comes to putting cash, or even shopping vouchers and book tokens, into the mail.

The good news is that, with the introduction of so-called prepaid cards over the past few years, there is now a relatively simple and much safer alternative.

Prepaid cards look, and can be used, in exactly the same way as debit cards. However, they're perfectly secure to send in the mail, as they can only be activated with a special code. The gift giver can either send this separately, or give the recipient a call to let them know the code in person. Either way, if the card goes missing in the post, any money loaded on to it will be safe.

Prepaid gift cards can usually be loaded with between 1 and 500, and some such as the Mint ( www.mint.co.uk) or Barclays gift cards ( www.barclaysgiftcard.co.uk) can have a personalised message added to the front of the card. Furthermore, Mint, like some other cards, also allows the recipient to receive free text updates letting them know how much is left on a card once they have started spending on it. The Mint and Barclays gift cards are both usable at any store that accepts Visa Electron, which is the majority of retailers.

Some gift cards can only be loaded with money once, and so are useless once the balance has been spent. While it is also possible to buy reloadable prepaid cards, these are generally designed for a different market, and tend to come with a range of additional fees and charges. The only charge with gift cards is the one-off purchase cost typically between 2 and 5.

Sandra Quinn of Apacs, the card industry's trade body, says one other advantage of prepaid gift cards over good old-fashioned banknotes is that they can be educational. Unlike debit and credit cards, there are no minimum age limits for recipients. So, they can be a good way of giving young adolescents their first introduction to using cards.

"They provide an opportunity for children to get used to using cards and managing their money," she says.

Although prepaid gift cards are expected to multiply over the next few years, and are already very popular in the US, there are still relatively few available in the UK. Aside from the Barclays and Mint offerings, most of the remainder are specialist ones available inside large shopping malls, such as the Trafford Centre in Manchester, or Bullring in Birmingham and these tend to be activated at the point of purchase, so are not secure to send in the mail.

If you're happy for the recipient of your gift to be limited to spending their money on the internet, another alternative and secure way of gifting cash is to use a virtual pre-paid card, available from 3V.

These can be bought from retailers, and are effectively prepaid debit cards but without the physical piece of plastic that goes in your wallet. When you put money into a 3V account, you are given a receipt with a temporary Visa debit card number on it. The security code and expiry date are then texted to your phone so if you're giving a gift, all you need to do is forward the text on to the recipient, and send the receipt in the post.

Once your relative has got all the numbers, they can use them just like a normal debit card to make purchases on the internet or over the phone. For more details, and to find a retailer in your area that offers 3V, visit www.3vcash.com.

If you'd rather send your loved ones vouchers or tokens from a specific retailer, there are some, such as the Ticketmaster gift card ( www.ticketmaster.co.uk/giftcards), which also require activation codes, giving them the same level of security as other pre-paid cards.

Most, however, are active from the moment you buy them, so if they go astray in the post, the credit you put on them will be lost. Arcadia, which owns Top Shop, Burton and Dorothy Perkins, offers free protection against loss or theft, on the condition that you register your card once you've bought it.

Beware the store card trap

If, like most people, you decide to head out to the shops to buy your relative's Christmas presents this year, avoid the temptation of being persuaded to take out a store card unless you're sure you've got the discipline to pay off the entire balance within a month of your purchases.

According to Uswitch.com, the comparison site, Christmas shopping on store cards costs UK consumers about 900m more in interest than shopping on credit cards. The average store card APR is 26 per cent, with many charging interest as high as 30 per cent. In contrast, the average credit card APR is 16 per cent, and it is still possible to get personal loans for under 10 per cent if you've got a good credit history.

"People are typically lured into store card 'deals' at the checkout because they will get a small discount on the purchase being made," says Mike Naylor of Uswitch.com. "In most cases, this discount will be completely negated by the high levels of interest incurred by those who do not pay the balance off in full every month. More importantly, a busy checkout in a department store is not the best location to allow people to make an informed financial decision and read the small print before signing up.

"The number of these cards in circulation has almost doubled over the past five years, which is why consumers really need to wake up to this money trap."

* To find the best card and loans visit www.uswitch.com or www.moneyfacts.co.uk.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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