Gifts cards are a hot gift item these days. I think part of the reason they have grown in popularity is because it relieves the gift buyer from having to guess what the recipient wants. It’s an easy option that guarantees that the recipient will like what they get, mainly because they get to choose the gift themselves. What a great gift idea; especially if you don’t know the person well.
However, those little gift cards aren’t without their faults.
You would think gift cards can be used just like cash, and for the most part they can. But unlike actual cash, gift cards can lose their monetary amount over time or even immediately in certain situations.
Eric and I found a gift card from the wedding that we forgot to use. Stuck in the depths his wallet was an American Express gift card that was worth $100. But when the cashier ran the card it only had $94 on it.
$6 had magically disappeared in the 15 months we had the card in our possession. How could that be? How could this gift of “cash” devalue?
Fees, starting on the 366th day after the card was purchased for us, ate into the amount of the gift card.
If you don’t spend the entire balance within a year, it can lose a set amount (often $2 or $3 a month) until the balance is $0. They call these penalties “maintenance” or “dormancy” fees. You tend to see them more on “open loop” cards (cards that can be used anywhere that credit card is accepted, like Visa or Mastercard gift cards) but they can also be found on some store-specific gift cards.
Some cards can even expire, meaning you can lose the entire value of the card if you don’t use it by a certain time. Many retailers have dropped their expiration date policies to be more customer-friendly, but not all of them have.
Many states have passed laws preventing gift cards from expiring but it usually only applies to local retailers rather than national chains. I guess if your gift card has an expiration date and you fail to use it in time, that well intentioned gift turns into a donation to that store on your behalf. Lovely.
What if you have gift cards from a company that runs into financial trouble? Unfortunately, they have the potential to become worthless. That is exactly what happened to people holding Sharper Image gift cards recently.
CNN picked up on this story from the Associated Press:
The Sharper Image announced late last month that it was suspending the acceptance of gift cards, at least temporarily. It urged shoppers to check the company Web site later this month for an update. That is typical of businesses that reorganize under Chapter 11 bankruptcy, which treats gift cards as a loan to the company, not as cash.
Refusing to honor gift cards is a public relations nightmare, because people will feel like their money was stolen from them, and rightfully so. Both the buyers and recipients of gift cards are hurt when the cards become worthless pieces of plastic. I can’t imagine any company that refuses to honor gift cards would ever regain consumer confidence, and without a customer base the company has no real future.
According to the article, consumers should never assume that if a company files for bankruptcy but continues to do business that they have to keep taking the gifts cards. That’s scary, especially in our economic climate, where the number of retail bankruptcies this year is expected to reach levels not seen since the 1991 recession.
Overall, I still think gift cards are good gifts as long as everyone is aware of the fine print and potential risks associated with them.
Recommendations for gift card buyers:
- Before you purchase a gift card make sure to look at the rules. Will the card lose its value over time or does it expire? Consider buying a gift card directly from a retailer (i.e. Target or Best Buy) as opposed to a card that can be used in multiple stores (like AmEx or mall gift cards) to help avoid potential fees and expiration dates.
- Only purchase gift cards from places that you feel confident will be around for a while. If the business appears to be having trouble it might not be there by the time the recipient is ready to redeem the gift. Small retailers (like local salons or restaurants) pose the highest risk to gift card users because they are more vulnerable to bankruptcy in down economies. Stick to the larger, established retailers for the best chance of long term stability and gift card solvency.
Recommendations for gift card recipients:
- Use the gift card as soon as possible. Don’t give the card time to lose its value or risk having the company disappear.
- Read the back of the card and familiarize yourself with the rules, especially if you don’t want to use the gift card immediately. Know how the card the works so you can avoid any loss of value through fees or expiration dates.
- If you have a gift card that belongs to a company that is no longer accepting them, see if their competitors will give you a discount for it. Some stores look at it as a way to bring in customers from their competition and will accept the worthless cards for a discount on their products.
- If the store closes its doors, don’t automatically assume that you can’t redeem the gift card. Do they have an online store? Are there still stores open in nearby areas? Failed mom-and-pop businesses are least likely to be able to honor the cards but larger retail stores might still be able to down the line. It never hurts to call and ask.
Image Source: buba69
January 15, 2008
I have to say gift cards are an easy present to give when you find it really hard to find the perfect gift, especially when someone has everything, but the gift card should not go down in value it should be the same amount as what you purchased it for.
January 16, 2008
There are some people that would prefer to buy their own gifts. I like gift cards as its a way of buying friends and family exactly what it is that they wish.
I was not aware that the card issuers could deduct monies over time. This could be rather embarrassing, lets say I tell a friend here is your gift $100, by the time they use it, its less and they think that I lied.
This is not fair to the consumer, the retailer already been paid for non delivery of product.
January 16, 2008
Since there is no insurance that the gift card will be free of these financial entanglements, I prefer to opt for cash as a gift. In fact, that leads me to recall that my sister gave me an AMEX gift certificate last summer, which could be used almost anywhere. That was a nice option, too.
Jerry
http://www.leads4insurance.com
January 16, 2008
I have to agree with the gift cards being kinda thoughtless, but everyone in the family always loves going to the store with their cards after birthdays and such because it’s an event we don’t do very often.
As for the gift cards eventually expiring… Companies are actually liable for all outstanding balances on rewards cards and gift cards until they’re used. The accounting gets messy when you show that at any moment a million customers could walk in and use cards that were issued up to 5 years ago. With many cards getting lost and never used, this creates a huge liability for companies that they always have to account for unless they create a plan to expire the amounts over time.
I don’t like the fact that it’s usually just one year, but the expiration itself is OK by me since we generally use our cards within the first couple months anyhow.
January 16, 2008
Higher food prices are busting her budget…
Melissa at A Penny Closer used to be skeptical about all of the gloom-and-doom talk about the economy. No longer. Now she’s having a very difficult time staying within her $75-a-week food budget, even though she’s buying less meat. “In the past I c…
January 17, 2008
gift cards are disappointing to most kids…and frankly, i don’t like them either. they don’t taste good, they don’t look good, you cant wear them, and if you hang on to them awhile they either get lost or lose their value. i would by far rather get a hallmark card with a nice letter-it is more thoughtful..gift cards are for people who don’t have time to be thoughtful.
January 17, 2008
I have to admit that I love receiving gift cards. However, I do realize that they can be pretty iffy. I avoid giving them, but I still love to receive them (don’t ask, but still get them from relatives).
January 17, 2008
There are two types of gift cards. Open and closed loop. Most closed loop cards do not have fees, costs or expiration dates of any kind. Examples are: Home Depot, Applebee’s, Dunkin Donuts, etc. These are retail specific. Open loop card include: Mastercard, Visa, Discover and AMEX. These are the cards that come with activation fees, have dormancy fees and eventually can lose all their value. Give closed loop cards from reputable brands and stop worrying.
January 17, 2008
Good tips. Another one for buyers would be to give them enough money on the gift card that the recipient can actually buy something without having to spend their own money.
January 18, 2008
Gift cards are a real drag to give to kids, since it commits parents to taking their kids to malls and big box stores, quite a dirty trick.
I wrote about this:
http://moneychangesthings.blogspot.com/2007/11/great-gifts-with-really-bad-unintended.html