Avoid gift card gotchas this holiday season

You’re running out of time to wrap up your holiday shopping. But at least there’s a quick and easy solution for gift-giving: Make your recipients do their own shopping by presenting them with a gift card. It’s an option that combines the practicality of cash with the thoughtfulness of personalizing the present for each recipient.

Or so you might you think. There’s actually more to gift cards than a gleaming slab of plastic that tucks neatly into a stocking—so much so that not everyone thinks of them as a great gift option. “My personal advice would be not to use them,” said Vladimir Nardin, CEO of consumer products and reviews site Pissed Off Consumer. The way Nardin sees it, nothing beats cold hard cash for flexibility; gift cards can come with conditions and caveats, many of them tucked out of view.

Even if you don’t agree and plan on going the gift card route, there are a few general practices for avoiding gift card disasters. First off, says Nardin, realize that the issuers of the card are relying on you not to use them right away. So if you’ve got a card that lets you shift a balance to an online service or retailer—an Apple iTunes Music Store card, for example—load it in right away.

Nardin also advises that anyone giving a gift card keep a receipt. “Sometimes retailers don’t honor gift cards … you don’t have to give it with the gift, but keep it on hand,” he says.

Aside from those general precautions, there are other, specific considerations any considerate gift-giver needs to be aware of before dealing gift cards to your nearest and dearest—or getting those cards dealt to you.

Avoiding unpleasant fees

Read the fine print on bank-issued gift cards if you want to avoid a holiday surprise.

A few years ago, my brother sent out what he thought was a foolproof gift: a $100 Visa gift card. However, once I read the card’s fine print, I discovered that the issuing bank charged 35 cents for every transaction on the card,—at the very most, I’d be able to buy something for $99.65. And thanks to an afternoon of obsessive Amazon.com shopping cart calibration, I did. Thirty days later, I received a statement from the bank demanding another 65 cents as a monthly service charge for the gift card. To add insult to prior injuries, my brother told me he had paid a $3 processing fee for the gift card—in other words, he had paid $103 for a gift card with a total value of $99, giving the bank a clear 4 percent profit margin.

While a Visa, Mastercard, Discover or American Express gift card can offer one huge benefit over cash—it can be used to shop online—it comes with several caveats that cash doesn’t carry. Before you give the gift of bank-issued gift cards, double-check the following:

  • Does the bank charge a fee for using the card? Is it a one-time fee or there a charge every time someone draws against the balance on the card?
  • What consumer protection does the user have with the card? Can they dispute charges from a retailer if a transaction doesn’t work out? If not, there’s no more protection than cash offers—and far greater odds of transaction fees.
  • Does the bank charge a monthly maintenance fee on the gift card? Does this start before or after the card’s been used by the recipient?

Bank cards aren’t the only gift cards with hard-to-detect caveats. Although the Credit Card Accountability Responsibility and Disclosure Act of 2009 set some very general limits on gift card expirations—retailer gift cards cannot expire within five years from the date they were activated, for example—there are state-by-state rules on when gift card issuers can charge inactivity or maintenance fees.

Here are the fees you’ll want to keep an eye out for in the fine print before you give—or activate—a gift card:

  • Are there post-sale fees that go into effect if the card isn’t used within a year of purchase?
  • What are the lost or stolen gift card fees?
  • If the card is a store-branded card, what is the retailer’s policy on issuing replacement cards if the original is lost or stolen?
  • If the gift card was purchased in a discount pack—like the kind you’d get at a bulk retailer like Costco—are there stricter deadlines for using the card?

Regrettably, most retailers aren’t forthcoming about their gift card fine print. If you’re going to buy a gift card, it’s safer to do it in person so you can ask a manager about the specific terms of use.

Getting a gift card you don’t like

Despite the theory that gift cards offer all the flexibility of cash with a dash of personalized thoughtfulness, there will always be that gift card to an electronics retailer, store, or restaurant you don’t want. What can you do in these cases?

Forget about exchanging the gift cards for cash at the retailer that issued the card—most don’t allow that. Instead, you’re stuck with store credit. Your best bet: Find someone who will give you cash for that store credit.

Step one: Google secured gift card exchange.” There are a lot of online sites where you can sell your cards online or attempt to exchange them for another retailer’s card. Another search that produces a wide array of results: “trading in gift cards for cash.”

Be warned, however, that you’re not likely to get full value for the card. Most of these sites will broker deals that get you anywhere from 80 to 90 percent of the balance, and what you can get for the card often depends on how “hot” the retailer is. (A gift card from Home Depot can get you a fair return, for example.) If you’re going to enter the online card-exchange marketplace, it pays to comparison shop for the best deals.

Paper or plastic… or email?

The general term may be “gift card,” but there are three distinct forms these take—plastic, paper (in the form of a coupon or email you print from a website), or electronic.

Apple’s iTunes Store lets you choose between printing a paper gift certificate or sending one electronically. And of course, the company’s plastic gift cards are everywhere.

Each has its benefits and drawbacks. Plastic or paper vouchers provide the quaint experience of giving a physical gift, and they’re more comfortable for older recipients who may not be keen on e-commerce. However, there is always the risk of misplacing the card.

Gift cards delivered via email are useful for last-minute shoppers or the clutter-averse on your gift list, but the biggest drawback to email is, of course, that it can get caught in a spam filter.

If you suspect you’re on the receiving end of a last-minute electronic gift certificate, check your spam filters from December 23 through the 26th. If you’re the last minute gift-giver, text or email the recipient to give them a heads up. They’ll be grateful, and you’ll be glad they got the gift. And isn’t goodwill the reason for the season?

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