Gift cards the good and bad

gift cards

Gift Cards

Holidays are always around the corner and you might be thinking that you need a quick easy gift for someone. Gift cards seem like a good answer to that problem. I personally purchased 10 or so gift cards this season. It seems like everyone is carrying gift cards. I went to the tower of power in Walmart and picked out a bunch of cards for family.

Here are some facts about gift cards:

According to Archstone Consulting in Stamford, Conn., sales of gift card purchases will reach $35 billion in 2007. For all consumers, the average amount of each gift card was $53, up from $46 the previous year. According to the Needham, Mass.-based consulting-firm TowerGroup, the estimated value of unused gift cards in 2006 was $8 billion. More than 10 percent of the $58.3 billion in gift cards bought this year won’t be used, according to Needham, Mass.-based consulting-firm TowerGroup.

Be careful when purchasing certain cards because many cards saddle the recipient with expiration dates, fees, and restrictions on what can be purchased. Buy directly from a retailer if you want to save on fees.

Some gift cards carry inactivity fees that reduce the value of the card if it’s not used within a specific period of time. Others expire in six months. Some retailers tack on a surcharge, which means a gift card for $25 could cost you as much as $35.

Gift Card giving:

Consider giving a gift card from a retailer, rather than from a credit card company. Though gift cards offered by credit card issuers can be used anywhere, they usually impose more fees and restrictions.

Some credit card gift cards impose monthly maintenance fees that can eat away at the value of the gift. In most cases, the fees don’t kick in until the card has been inactive for a year or longer.

The fees to buy credit card gift cards are higher, too. Visa gift cards, for example, charge fees ranging from $2 to $10.95, depending on where the card is bought, according to Bankrate.com. Most retailers don’t charge fees for their gift cards.

Read the fine print:
Consumers need to be aware of the terms and conditions of the gift cards. The Federal Trade Commission oversees gift cards and requires all gift cards to include a printed guide to terms and conditions with the card. This is fine for the buyer, but it’s the recipient who needs to know if and when the card expires, if there are fees for checking the balance or any other rules. if you’re giving a gift card, be sure you include the terms and conditions.

The distinction between cards with fees and expiration and those without them depends on the issuer. The retailers’ gift cards known as “closed-loop” cards because they can be used only at that retailer and carry no fees.

Then there are the open-loop gift cards which cost from $2.95 to $6.95 to purchase and have expiration restrictions, after which monthly deductions are made until the balance is zero. They can be used anywhere those credit cards are accepted. Consumers don’t seem to be deterred by the fee to purchase these use-anywhere gift cards. The open-loop gift card business grew by 121 percent in 2006, to almost $3 billion, according to Mercator Advisory Group. And research suggests that growth in 2007 will continue. The open-loop cards are from American Express, Discover, MasterCard and Visa and the six largest operators of shopping malls.

Buy gift cards from reputable merchants. The popularity of gift cards has spawned websites that let people auction or exchange gift cards. Though some well-known exchange sites have policies and protections to prevent fraud, consumers risk buying cards that are counterfeit or stolen, the National Retail Federation says.

In one case, a U.S. retailer tested 42 gift cards on sale at an online exchange site and discovered that 22 were either stolen or fraudulent, according to the National Retail Federation, which declined to identity the retailer. If you want to make sure that a gift card is legitimate, then buy directly from the merchant.

Gift Card Receiving:

Register your gift cards online. Retailers are increasingly offering this service Registering your card will make it easier to track your balance and replace a lost or stolen card.

If you lose a card, call the toll-free number provided by the issuer right away. Some issuers won’t replace a card if someone uses the balance.

A gift card from your employer is a thoughtful gesture, but it’s also taxable. Gifts of turkeys, hams and umbrellas featuring your company logo aren’t considered compensation because they have minimal value, says Donna LeValley, contributing editor with J.K. Lasser’s Your Income Tax 2006. A gift card, though, is the same as a cash bonus. Whether the card is for $5 for $500, it’s considered income, and you’re expected to pay taxes on it.

Check the conditions on any gift card you get, and use it before it expires.

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