Financial Education
Playing your cards right: A guide to gift cards
Once seen as an impersonal present given by someone who either waited until the last minute or didn't give it much thought, the gift card has become one of the most popular items during the holidays. They have become more personalized to eliminate their once-antiseptic image, and retailers from big box stores to corner gas stations offer them in a wide range of prices. In fact, gift cards have become so popular that the National Retail Federation (NRF) estimates that American consumers will spend more than $24 billion on them during the 2007 holiday season.
For military families, gift cards are often a practical choice—service members find themselves far from friends and families, gift cards are easy to include in a greeting card (thus saving money on shipping) and, since the larger retailers often allow the gift card to be used at any of their stores across the country, location doesn't matter. Also, since a wide range of companies offer them, there is more than enough variety to allow for purchases both practical and frivolous (or fun, depending on one's point of view).
There are a few key considerations, however, since some have fees and conditions that you may not realize until it's too late.
Check for fees
There can be a number of additional costs added to a gift card, either at the time of purchase, or as the recipient waits until the right moment to use it. Some of these include:
- Purchase fees—These are added onto the amount of the card when initially purchased. Usually factored as a percentage of the card's total value, some may also have a flat fee. This type of fee is also usually associated with bank-issued cards (such as a Visa or MasterCard); an NRF study found that 92 percent of retailers do not charge a purchase fee.
- Service and maintenance fees—These are typically charged each month the card is not fully redeemed. This will be done automatically and the recipient will likely not know it until he or she goes to make a purchase, only to find the amount is less than anticipated.
- Replacement fees—If the card is lost or stolen, some issuers may charge a fee for replacement.
When buying a card, make sure to ask if you, or the recipient, will be charged any of these (or other) fees prior to purchasing. The last thing you want is to give someone a $50 gift card, only to find out that it only has $40 of purchasing power.
Check for expiration dates
The NRF states that 92 percent of its member retailers do not have expiration dates on their gift cards, while some states (such as Connecticut) have laws that expressly prohibit a retailer from imposing one. That does, however, leave thousands of places where an expiration date may be put onto a card. And since more than a quarter of gift cards given last year have yet to be used, it's vital to check to see if and when they expire.
One of the reasons a company may implement an expiration date is because it doesn't consider the purchase of the gift card as an actual sale—it's not until the card holder uses the card that it is added to the company's sales figures. So they see an expiration date as a way to get the sale in a guaranteed amount of time.
There are also some legal issues surrounding when a gift card is used: In several states, if a gift card is not used after a certain number of years, retailers can then consider that card income, thus leading to a windfall. And while 30 states do not collect unused gift card revenues (in the form of sales taxes), in Michigan, these unused gift cards are collected from companies by the state after five years, according to the state Department of Treasury.
For most, an expiration date won't be a huge concern since most people won't turn down what is essentially free money and a chance to go shopping on someone else's dime. But if the intended recipient is a member of the Armed Forces, it could be a problem since deployments, PCS or other issues could make it difficult to go shopping in an allotted amount of time.
Again, just be sure to double check whether or not there is an expiration date, and inform the recipient of it so they know there's a certain amount of time in which they need to use it.
Online considerations
Online shopping has exploded in recent years, and buying an "online" gift card can be seen as a good choice. It requires no shipping on your end—just fill out a form, pay for it, and an email is sent to the recipient at a specified time letting him or her know that there is a virtual gift card waiting for them. It's also the height of convenience since you don't even need to leave your house and fight the crowds at the mall.
That doesn't mean it's not without risks, however, with the key one being whether or not the site is trustworthy.
The safest bet when buying an online gift card is to do so with companies with proven track records. While there are many sites that seem legitimate—and some that may have even been around a few years—there is no guarantee that it will be up and running next year, or even next week. By choosing a retailer that you're familiar with and that has proven itself stable, you can be assured that the gift card won't become useless.
Also, if possible, choose a retailer that also has actual storefront locations. This makes it much easier for the recipient to make returns if the item is faulty, and also gives an avenue for resolving disputes if they arise.
Enjoy shopping
None of these considerations should keep you away from getting a gift card for that friend or family member. They can, however, ensure that you are getting the best deal for your money, and that the recipient is actually getting a card worth the stated value.
And as a bonus, you get to enjoy an easy and enjoyable shopping experience, while whomever you give the gift card to gets what he or she truly wanted, making for a happier holidays for everyone involved.
About the author
Karen Von Der Bruegge proudly grew up as a military brat whose father served 32 years in the United States Army. She is currently Chief Marketing Officer for Pioneer Financial Services, Inc., a company that provides responsible financial services and education exclusively to the military community. She is both a Certified Credit Report Reviewer and Identity Theft Prevention Specialist, and directs the management of Web sites that receive more than 100,000 page views every month.
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