Who doesn’t like money? The near-universal appeal of cash has made it a popular gift for special occasions since the Lydians minted the first coins in the 7th century B.C. Cash also saves a lot of time and trouble. What could be simpler than opening your wallet or change purse?

To give the gift of cash properly, you’ll want to get crisp bills from the bank and slip them into a card with a handwritten message. If you’re really ambitious (and generous), you might even roll up a few new notes and tie them with a festive ribbon to hew to the holiday theme.

But cash isn’t without its drawbacks. For one, if it’s lost, it’s gone forever. For another, it’s a gift that tends to be forgotten almost as soon as it’s put into a wallet with other bills.

Consumers who want to give cash for the holidays should also consider gift cards and prepaid cards, some of which are almost as widely accepted as cash and can come with some benefits that cash lacks.

Here’s what to consider when deciding between these options.

  Gift Cards Prepaid Cards
Pros In a word: convenience. Just grab merchant cards or payment network cards (American Express, Discover, MasterCard, and Visa) at a drugstore, retailer, or supermarket. They can also be purchased online and sent to you or your giftee by mail. Federal law prevents cards from expiring for at least five years from the purchase date or from the last date any additional money was loaded onto them. State laws often provide additional protections. Prepaid cards can be used wherever merchants accept American Express (3.4 million locations in the U.S.) or MasterCard and Visa (12 million). Also, the recipient can add money to a card and continue using it to pay for purchases. (The cards are also a good money-management tool.) Make sure you give cards with low or no monthly fees or other user charges.
Cons Merchant cards can be used only at the walk-in or online store of the issuing retailer. If the company goes out of business, the recipient might not get the full value of the card, or it might become worthless. And the merchant might not be a favorite of your intended recipient. If you're sending a gift card to someone in a different region of the U.S. or overseas, there might be few convenient store locations (or none). There might be a small fee to buy and activate network cards. You'll usually pay a few dollars for a prepaid card at a store or online. And not all prepaid cards are a good deal. Some have fees that can eat up the balance. When we rated 20 prepaid cards earlier this year, we recommended only about half of them.
Security Some issuers won't replace a lost or stolen gift card, the Federal Trade Commission says. Others will—with proof of purchase and the card's ID number—so give the receipt along with the card. But don't expect to get back any value stolen before you report the loss. Scammers can also copy gift card codes while they're still on a rack, then steal whatever money a gift-giver loads onto the card. Before you buy a gift card, inspect its protective stickers or coating for tampering, and don't buy it if the PIN has been revealed or the sticker seems to have been replaced. Many issuers of prepaid cards voluntarily offer the same consumer protections against fraud loss as bank debit cards by limiting your liability to $50 if you report the unauthorized use within two days of discovering it. Prepaid cards with the MasterCard and Visa brands go further by providing zero liability. But to get those protections, you must register the card. In October the Consumer Financial Protection Bureau issued a rule requiring that all prepaid cards match the liability protections of debit cards, but the new regulations won't take effect until October 2017.
Our Advice Don't give a merchant gift card unless you're certain the intended recipient really loves the store. Almost one billion dollars in gift cards went unspent 2015, according to the market research firm CEB. Three cards stood out in our ratings: Bluebird by American Express and Walmart, Chase Liquid Visa, and Green Dot Prepaid Visa. They were highly rated for safety (insured by the Federal Deposit Insurance Corporation), fee accessibility, and clarity. They also rated well for value (low fees).


Editor's Note: 
This article also appeared in the December 2016 issue of Consumer Reports magazine.