Canadian financial writer and TV host Gail Vaz-Oxlade recently commented on Twitter, "Do not use prepaid cards. They're a complete rip-off." However, 51 per cent of respondents to the 2011 TD Bank holiday shopping poll said they hoped to receive a general purpose prepaid card as a gift this year.

Unlike store-specific gift cards, shoppers can use prepaid cards branded with the American Express, MasterCard or Visa insignia at most participating merchants displaying one or more of those logos, making them popular with shoppers.

But are they worth the money? Here are seven of the most perplexing myths surrounding stored-value cards.

Myth No. 1: Prepaid cards replace credit cards.
Although they physically resemble credit cards, prepaid cards are funded by upfront cash only. Consumers often confuse prepaid cards with credit cards because both display credit card company logos.

Some prepaid cards, such as the BMO Prepaid Travel MasterCard and the RBC Visa Gift Card, can be embossed with the cardholder's name for a fee. However, most prepaid cards are anonymous, require no application or credit check and cannot be used to:

• Set up recurring bill payments.
• Make preauthorized deposits on high-priced goods or services.
•  Withdraw cash from automated teller machines.
• Obtain other cash advances.

Generally, prepaid cards have expiry dates and must be activated before use.

Tip: Before buying any prepaid card, carefully read the cardholder agreement for all terms and conditions.

Myth No. 2: Prepaid cards are universally accepted.
Many shoppers assume that you can automatically spend your prepaid cards at retailers just because they accept specific credit card brands. But that's not always true. Prepaid plastic with the phrase ‘Electronic Use Only' on the front of the card will be rejected by merchants that depend on manual imprint machines to process their card transactions.

Domestic prepaid cards state ‘Valid only in Canada,' while other stored-value cards are also accepted in the United States. Prepaid travel cards are often redeemable worldwide, while some prepaid card companies disallow purchases at casinos or on cruises.

Once registered with the card issuer, prepaid cards can often be used for phone and online orders. A customer service rep advised CreditCards.ca that Amazon.ca accepts brand name prepaid cards just as they would credit cards. Shoppers simply furnish the prepaid card number and match the registered billing address and can make a default entry should the prepaid card lack an expiry date.

Tip: Confirm in advance which prepaid cards an intended shopping destination accepts.

Myth No. 3: Prepaid cards save compared to credit card interest.
Stored-value cards don't charge interest, but other fees can add up quickly. The Iridium MasterCard is advertised as a low-fee prepaid product. But even with its comparatively low $1.99 activation fee, $0.39 per transaction charge and a monthly service fee of $2.49 after six months, costs can easily surpass 20 per cent for a $25 card. A wide range of other fees, including live service support, could push prepaid card expenses to well over 70 per cent of the card's face value.

Other prepaid cards impose even higher fees. Consumers need to carefully compare all expenses before deciding whether the benefits of a brand name card justify those costs.

Tip: Insist that providers fully disclose all prepaid card charges.

Myth No. 4: Prepaid cards improve your credit rating.
Marketing claims that prepaid cards improve the buyer's credit rating amount to false advertising, according to the Financial Consumer Agency of Canada (FCAC).

As non-credit products, prepaid cards don't directly boost credit scores. Still, stored-value cards can force shoppers to develop disciplined spending habits.

Tip: Use prepaid cards to stay within a pre-set cash budget.

Myth No. 5: Card activity is reported automatically.
Forget about receiving a printed update of card transactions in the mail. The responsibility for tracking ongoing prepaid balances falls squarely on the consumer's shoulders.

Fortunately, prepaid cards offer other ways to monitor ongoing card balances. These include online statements, phone inquiries and in-store updates. Online statements are often free, while other customer service requests incur hefty fees that shrink available card balances.

Tip: Thoroughly research card inquiry fees, and keep receipts to manually track card transactions.

Myth No. 6: Prepaid card purchases are ineligible for refunds.
Just like other payment methods, prepaid cards qualify for reimbursement on returned merchandise. Most cardholder agreements specify that individual store policies determine whether or not buyers will receive replenished credit on their prepaid cards.

Similarly, consumers must resolve disputes directly with the merchant involved. Before issuing refunds, sellers typically require consumers to present the prepaid card used for the original purchase.

Tip: Even after expiry, keep depleted prepaid cards together with receipts for possible returns.

Myth No. 7: Lost or stolen prepaid cards are protected.
Here's some good news. If you register prepaid cards with customer service, card companies will generally issue replacements for lost or stolen cards. Unused balances are transferred to re-issued cards.

Here's the bad news. Replacement fees ranging from $10 to $20 can erase any transferable value. Plus, no reimbursement is available for amounts debited before the issuer is notified about the missing card. You must also specify the lost or stolen card number, so keep a record of prepaid card details in a safe place.

Tip: Sign the back of your prepaid card, since merchants require buyers to sign receipts at checkout.

See related: Loblaw outlaws gift card purchases via credit card; Do online gift card exchanges really save you money?