For last-minute holiday shoppers, gift cards make convenient (if impersonal) presents. Retailers also love gift cards, which recipients often lose or forget to use. According to a recent Consumer Reports survey, 27 percent of gift card recipients this year haven’t redeemed one or more of their cards, up from 19 percent a year ago. And financial analyst firm TowerGroup estimates that consumers forfeited $8 billion last year due to lost, expired, or unredeemed gift cards.
Gift cards may come with sneaky fees, as well, and givers and recipients alike must know their rights to avoid being ripped off.
Major retailers such as Best Buy, Target, and Walmart typically sell house-brand cards at face value. A $50 Walmart Gift Card, for instance, costs $50 to buy and never expires. If you purchase the card online, Walmart offers free shipping via the U.S. Postal Service (seven- to ten-day delivery time), as well as faster and pricier options, including one-day shipping for $15.
Attack of the Killer Fees
American Express, MasterCard, and Visa prepaid gift cards are often laden with additional charges. GiftCards.com, for instance, charges a $2.95 fee for cards ranging in value from $20 to $74.99, plus an additional 44 cents for shipping via USPS; the actual cost of a $50 Visa gift card, for instance, winds up being a little over $53. The site also charges a $4.95 fee for a Visa “virtual” gift card, which transmits to the recipient via e-mail. The total cost of a $50 virtual card is therefore almost $55.
GiftCards.com’s fee schedule reveals a few stealth charges that affect recipients, as well. Failing to use a card in 12 months, for instance, invokes a charge of $4.95 per month. And if you call one of GiftCard.com’s support reps to check your card balance, you’ll pay $1. (You can check your balance online for free, however.)
American Express gift cards are no bargain at Walmart’s site, where up-front fees range from $4.64 to $5.64. A $50 AmEx card costs $54.64, for example, and a $100 card is $105.64. Unlike with standard credit cards, users can’t dispute purchases they've made with an AmEx gift card, which has no fees after purchase and never expires.
One of the most egregious fees comes from retailer Ikea, which adds an $11 shipping charge for all gift cards purchased over the phone. (You can’t buy an Ikea gift card online.) Why the usurious charge? Ikea ships its cards via FedEx 2Day service, and no cheaper option is available. On the plus side, if you buy an Ikea gift card at one of the furniture giant’s retail stores, you pay no additional fee.
New Consumer Protections
This year brought new protections for gift card users, including a series of U.S. Federal Reserve rules that took effect in August 2010 as part of the Credit CARD Act. The regulations cover both store gift cards (Best Buy, Ikea, Target), and those with an American Express, Discover, MasterCard, or Visa logo.
Among the new rules:
* Money on a gift card is good for at least five years after the card’s purchase date. Funds added to the card at a later date are also good for five years.
* All fees must be plainly stated on the gift card or its packaging.
* Fewer gift card fees are allowed. New restrictions apply to usage, inactivity, and maintenance fees, as well as fees for adding money to the card.
* You can be charged inactivity fees if you haven’t used the card for at least a year.
Your state may have additional protections that exceed the federal regulations. Consumers Union offers a handy guide that lists these protections by state. Be sure to check it out.