When Gift Cards Go Bad POSTED: 11/25/2008 2:15:48 PM

Gift cards make popular gifts in many respects. For people that are hard to shop for, a gift card provides the freedom for them to select their own present, and save the shopper many stressed out hours in the mall. And, for relatives and friends who live far away, gift cards are a fantastic way to save on shipping costs, and still send your holiday or birthday presents.

While gift cards are amazingly popular, and are the second and third most desired gift of women and men, respectively, there are some potential pitfalls that both givers and receivers should know about. In 2007, Americans spent over $26 billion dollars on gift cards over the holiday season alone, but as much as $8 billion dollars spent on gift cards annually will never be redeemed. So, why aren’t people spending their gift cards?

One reason is that some people are just as inconvenienced by the thought of going shopping and finding something to buy with their gift card as the person who opted to buy them a gift card in the first place. If you dread spending hours in the shopping mall looking for the right gift, what makes you think that the person you are buying the gift card for will feel any differently. It makes sense to think that it is easier to shop for ourselves than for others, since we know our own wants and needs, but many people, especially men, report postponing using their gift cards because they don’t want to go shopping. In this case, choosing a gift card from a specific type of store will help, such as a book or sporting goods store, where the recipient can narrow down their options before they leave the house.

Another reason that some people don’t use their gift cards is because they think that they are saving money for the person who gave them the card. It is important for people to understand that gift cards are pre-paid, and that the money has already been spent. For the receiver, a gift card is the same as cash in hand, and not spending it will not save the giver any money. Unlike a check, gift cards have already been processed and the money has already changed hands. To not spend the gift card is the same as giving money to the company or retailer.

When you give a gift card, you might want to consider running over these facts with the recipient, to make sure that they make the most of your gift. If there are any special services, such as online shopping that might make spending the card more comfortable and convenient, you might include this kind of information with your gift. Some retailers have catalogues that explain how shoppers can make purchases online, and pay with their gift cards. Make sure that you include the gift receipt with your card, so the recipient can verify the purchase information if it becomes necessary.

Gift cards can make great gifts, providing that people have the information that they need to get the most of their card. Choose stores that are popular and versatile, so that the recipient has some options, and consider including the store’s catalogue or website address so that the person you give it to can browse their options and get excited about spending their gift card money.

Prepaid Credit Card Gift Cards POSTED: 11/25/2008 2:18:33 PM

Prepaid credit cards can make great gift cards, at least in theory. Major banks and credit cards offer gift cards that allow purchasers to buy prepaid versions of Visa and Amex cards that can be used as cash. Many major banks and several major credit cards offer prepaid gift cards that are marketed as redeemable anywhere that credit cards are accepted, which makes them more flexible than retailer’s gift cards. But it isn’t always that easy.

Credit and bank gift cards fall under the category of “open loop cards”, which means that they can be used at a wide variety of retailers, restaurants, and department stores. The obvious benefit of open loop gift cards is their versatility over retail gift cards that are only redeemable at one store. But there are some strict restrictions that reduce their attractiveness.

Open loop cards are more likely to have expiration dates and to carry activation, service and maintenance fees. Sometimes the banks and credit lenders that provide the gift cards don’t start charging fees for a few months, while others begin charging once the card is used for the first time. Typical maintenance fees range between $2 and $5 dollars each month. More annoying than the fees themselves is the fact that banks and credit companies rarely advertise hidden fees and catch users unprepared. If you use your $50 dollar gift card once in June for a $30 dollar purchase, by January your card could be empty, to your surprise when you try to use it for a second time.

Issues related to transparency and policy declaration for banks and credit companies are presently being reviewed by the Office of the Comptroller of the Currency (OCC), the federal branch responsible for national banks. The OCC is interested in ensuring the disclosure of both fees and policies, and to protect consumers. There have been numerous instances of complaints filed to consumer watch groups by customers who purchased bank and credit card gift cards only to find them impossible to activate, refused by retailers and restaurants and diminished by hidden fees and service charges.

Since prepaid gift cards are routinely given as gifts, it is unlikely that gift card holders will have the original receipt and purchase information that is required by credit companies and banks to troubleshoot non-activated and unresponsive cards. In the case that a prepaid gift card doesn’t work, the receiver is in the awkward position of asking the person who gave it to them for this information, or else the card will go unused, and be a complete waste of consumer money.

Due to the hassles of credit and bank gift cards, many consumer advisors recommend buying retail gift cards instead. These so-called “closed loop” gift cards are usually redeemable at only one retailer, or a corporate group of retailers, which is slightly restrictive in one sense, but they are also far less likely to carry any hidden fees or charges, making them the wiser choice. Closed loop gift cards are also slightly more personalized and indicate that the purchaser was thinking about the receiver and the kind of stores they enjoy in making their decision.