Beware the hidden costs of gift cards
Filed under: Credit, Credit cards
As we start to buy gifts for family and friends, we may decide to go the easy route and get a gift card. But think twice before you choose that route. New studies show gift cards are the most popular presents to give and receive, but the hidden costs may outweigh the convenience of the gift. Be sure you give and use these cards correctly."Gift cards are easy to give, but they are also easy to forget. If the card has a monthly fee or expiration date, these can become costly little pieces of plastic," Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook told me in an email interview. "Even though gift cards take the hassle out of holiday shopping, you want to use them wisely. It is important to know the terms of the card you are buying."
Holiday gift cards are a big business. According to the National Retailers Federation (NRF), sales of gift cards reached almost $25 billion in 2008. A new NRF study shows that 55.2% of adults are hoping to receive a gift card this year. However, many households still have unused gift cards from the last holiday season. According to a new Consumer Reports survey, 25% of adults that received a gift card in 2008 have yet to redeem at least one of the cards.
"This is the time to check your wallets, purses and drawers for gift cards that you received last year and use them immediately. Some cards may start charging a monthly fee after twelve months which drains away the value of the card," says Hardekopf. "You can even use them to start your holiday shopping."
Here are some consumer tips for buying gift cards:
- Buy a card only from a merchant you trust.
- Make sure the store is in a good financial position. Many retail stores are near bankruptcy, so if you want to give a gift card from a particular retail chain research its financial health first.
- Ask about the fees and expiration dates of the card. Read the card's fine print. Many gift cards charge a fee for every transaction, which actually lowers the value of your gift.
- If you receive a gift card, use it as soon as possible. Don't put it aside and out of sight. Use it before you lose it or forget about it.
- Check the terms and conditions of the card you receive. Look for an expiration date or any use fees. You can usually limit those fees by buying one or two large items, rather than several small items.
- Gift cards from major credit card networks can be used at any retailer that accepts their credit and debit cards.
- If the gift card is from a credit card network, write down the card number. If it is lost or stolen, the card can be canceled and a replacement issued. The replacement fees range from $5.95 to $12. Most store cards can't be replaced if they are lost or stolen. They are treated as cash.
- Keep the card, even after the balance is depleted, until you are sure you won't be returning any of the items that you purchased with it. The retailer may require the card with the return.
- If there is a problem with the card, contact the store or financial institution that issued the card. If that doesn't resolve the issue, contact the Federal Trade Commission at 877-FTC-HELP.
General purpose cards are from Visa, MasterCard, and American Express. They can be used any place these cards are accepted. The purchase fee ranges between $2 and $7. Many cards charge a monthly maintenance fee that is typically $2 or $2.50 and starts after six or twelve months.
The CARD Act does provide gift card protections, but these provisions don't go into effect until August 2010. It prohibits gift cards from expiring before five years from the date of purchase or when money was loaded onto the card. It also prohibits fees for the first twelve months.
What happens to unused gift cards? They can eventually revert back to the retailers as income. Some states can even claim unused gift cards as abandoned property.
If you have unused gift cards that you won't use, you can donate the cards to GiftCardGiver.com. That site will distribute the cards to non-profit agencies that can use the cards to help others.
Shop wisely and don't overspend. But if gift cards are the way you plan to go, be sure to read the fine print and know how much your gift card will really cost both you and the person who will get the gift.
Lita Epstein has written more than 25 books including the Complete Idiot's Guide to Improving Your Credit Score.
Reader Comments (Page 1 of 1)
11-09-2009 @ 7:13AM
Ken said...
The reason I DON'T give gift cards is that I have to pay sales tax on the card and the recipient of the card has to pay tax on their purchases. I am all for paying a sales tax ONCE!
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11-09-2009 @ 7:56AM
Jane said...
Buy MACYS gift cards, the cards do NOT have an expiration date, NO annual fee ,nor any other type of fees. If you want to buy a MACYS giftcard and put $50 on it , thats what you pay, there is no tax. Again the cards do Not expire. Also if you have cards issue prior to Feburary of two years ago, which did have expitation dates...those cards can be taken to any MACY store giftwrap (customer service) area and a the manager of that area can remove the expiation date off and correct any problems.
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11-09-2009 @ 7:57AM
amy3e said...
Just one more reason that while gift cards are easy to buy and give, they don't necessasrily make the best gifts. Also.. sometimes you can end up spending more on a gift card than on a gift with all the great sales and coupons and free shipping out there.. There is a great article at Celebration Ideas Online about Holiday shopping with tips on how to get organized and thus save money while affording nice gifts.
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11-09-2009 @ 8:03AM
Janelle said...
Do NOT purchase a Visa gift card unless you know the person will use all of it right away. I know so many people who lost a lot of the money on them. I will NOT purchase a Visa card even if the person would use it right away due to their horrible policies.
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11-09-2009 @ 8:42AM
Kynda said...
Visa gift card are the WORST! My employer, for reasons I cannot begin to fathom, decided if you didnt have direct deposit, you would start receiving your entire paycheck on a Visa debit card. Thank God, I had direct deposit!
I won 2 monetary awards at work where I received 200.00 each time in cash. The next time I won the award, I was given this money in 50.00 each Visa gift cards. They assured me they were sooo easy to use. NOT! The ONLY place I found them easy to use was restaurants or fast food places. Try paying a bill online or swipe it at the pump for gas.. they want a PIN number if you select Debit or they want a zip code associated with the card for Credit. I had neither as I was never given any numbers. I called my office, they had no answer for me, so I had to end up using them all going out to eat. Oh, and after so long, they started taking 3.00/mo off of the balance. And some of my fellow nurses are getting their WHOLE check on these crappy things!
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11-09-2009 @ 9:35AM
Joseph said...
I heard of a new gift card company that's coming to the market in 2010. When you buy a gift card from their site you can "link" that card to a charity you choose & also tell them when to expire the card and transfer the balance to the charity you chose. Get this, after the charity receives the donation YOU get a receipt for your taxes! So, they are rerouting the unused money away from the banks, corps, and gov't treasuries and giving it to charity! How cool is that?
The compnay is called Matter Of Change & the site is www.matterofchange.com, check it out for yourself.
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11-09-2009 @ 10:28AM
Paul said...
Just DON'T BUY GIFT CARDS AT ALL! They are all SCAMS to make them money. like the people that just forget to use them of misplace them means biilions in free money to all those grease bags every year. People! stop being stupid! Use cash, don't get locked into banks at all. stop credit cards, just stop borrowing! if you can't afford it, don't buy it.. simple.
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11-13-2009 @ 6:37PM
Moya Orr said...
My niece bought me (and 3 other people) an American Express gift card for last Christmas. We all tried to use them within 2 weeks of getting them only to find there was only a couple of dollars on each. As it happens, my niece was with me when I tried to use mine,(the other people weren't even going to tell her as they found it embarrassing) so we checked with American Express, who said the cards were used out of state to buy gas. I don't even have a car, and we had all stayed home over Christmas. We had a terrible job of getting either Ameriex or the seller of the card to accept responsibility, they each blamed the other. After 3 weeks! of telephone calls and being assured each time it was being sorted out, Amex decided "as a good will gesture" to send new cards, but they wanted a "lost card" fee. We had to argue that we still had the original cards, it was the money on it they had been stolen. DON'T BUY GIFT AMEX OR VISA CARDS at the mall, they aren't safe.
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11-09-2009 @ 2:03PM
PN said...
Used to be that gift cards were at the checkout counter. Now, they have displays in grocery stores and department stores and other stores. They have $25 and $50 and $100 store gift cards. All my favorites like Macy's, Kohl's, Home Depot,Lowes, JCPenney, Best Buy, the grocery store's own gift cards and others. The $50 Macy's gift card sells out quick in one store I've shopped and I ended up getting the $25 card. Haven't used the Belk gift card yet. I even use Wal-Mart's $25 or $50 gift cards when I shop in there to buy a group of items. And I use them now; have done so since early July; don't always have to wait for Christmas. They save me a lot of money and hassle and keep me away from the ATM machines. Don't use Visa debit card--some placed won't take them or will decline them. But Mastercard's gift card is excellent. People need to use them more during the holidays to purchase gifts not only for them, but others.
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11-09-2009 @ 3:13PM
Glen said...
JC Penny's literally STOLE the $50 my 87 year-old Mother spent on a gift card for my birthday just before she died. By the time we'd finished with her funeral, and devestation of Tropical Storm Allison, I found the card, checked it and found it was worthless after only 4 months. A company she'd been loyal to for decades had thieved money from an old lady who was thinking only of getting a nice gift for her son. NO ONE should buy these things, and JC Penny's should go bankrupt.
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11-09-2009 @ 5:04PM
NazzTea said...
One gift card promoter actually used a gleeful Ebenezer Scrooge, (who was a Usury Banker in the Dickens story), to promote their card. He's shown handing them out to people on the street, where one of them, confused as to what it is, uses it to scrap some ice on a window. Those cards (and the ones in this story) have about that much use to them.
Full of fees and decreasing in value the moment you get it. Why wouldn't Scrooge love it?
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11-09-2009 @ 3:52PM
JustK said...
Ken: if you paid sales tax on a gift card, you should have protested it. There is no tax on gift cards, as they are essentially just money. Buyer Beware...
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11-16-2009 @ 6:58AM
Sam Hogg said...
As a general rule of thumb, retailer specific gift cards almost always have the most consumer protection. Ones issued by credit card companies will generally have fees because they are in the transaction business. Retailers are in the retailing business, so their goals are to sell more product.
State legislatures have also done a great job in recent years to protect consumers from fees and early expirations. You can find the different protections in your state at the National Council of State Legislatures site here: http://www.ncsl.org/IssuesResearch/BankingInsuranceFinancialServices/GiftCardsandGiftCertificatesLegislation/tabid/12474/Default.aspx
Finally, many web services have emerged in recent years to help purchase, send, redeem, and swap gift cards without fees. GiftZip.com, for instance, helps users navigate to retailer cards that can be delivered electronically, and does it completely free of charge. Others can be found in a recent Entrepreneur article here: http://www.entrepreneur.com/magazine/entrepreneur/2009/november/203738.html
Hope this is informative.
Sam Hogg
Founder and CEO, GiftZip.com
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11-16-2009 @ 10:53PM
booklady said...
No, Ken, that is not true. I have an accounting degree and I own an independent bookstore. I sell gift certificates and sales tax is NOT added when they are SOLD. Sales taxes are added to the items purchased with the gift certificates when they are REDEEMED.
Before you can say, "Well, Booklady, perhaps you are doing it correctly, but no one else is", I will tell you that I use software for book sales & inventory and that it came with that default.
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