Gift Cards: What You Need to Know

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Gift Cards: What You Need to Know

Gift cards have quickly become a favorite option for many people, becoming the second most popular gift in the U.S. The soaring popularity of gift cards is due primarily to the tremendous convenience and flexibility afforded the purchaser and recipient. For the gift giver, gift cards can be easily purchased at almost any retail outlet and they relieve the burden of finding the right gift. For the gift recipient, gift cards offer almost unlimited choice in selecting what to buy.

It is important to note, though, that gift cards are not equivalent to cash and that they usually come with some restrictions. The U.S. government is currently considering legislation that will protect gift card consumers. In the meantime, the information below should be helpful as you contemplate your gift card purchases.

Types of gift cards

There are two basic types of gift cards: retailer-issued and bank-issued. Retailer-issued cards can be redeemed at the issuer’s retail outlets and through its website, as well as any participating stores or websites owned by the same parent company. Bank-issued cards usually carry the logo of a major credit card company, such as Visa or American Express, and are accepted at most merchants on that credit card network.

Fees and restrictions

In recent years, many states have enacted legislation prohibiting fees and expiration dates for gift cards. Many merchants, fearing a decrease in card sales, have followed this lead by eliminating both fees and expiration dates for their cards irrespective of state laws. However, there are still cards with associated expiration dates and fees.

Retailer-issued gift cards usually do not carry up-front charges because the retailers make their profit on the actual merchandise purchased. However, retailer-issued cards are more likely to have expiration dates or miscellaneous fees. These fees include those for administrative costs and replacing a lost, stolen or expired card.

Bank-issued gift cards commonly include an up-front fee ranging from $2-$10 and some are also subject to other charges. Terms and conditions vary widely for bank-issued cards, so it is important to research any expiration dates and all possible fees.

Gift cards can also come with restrictions regarding their usage. These cards can be store-specific and can have limitations on what can be purchased, as well as having complex rules of redemption.

Other risks

There are other risks associated with gift cards. For example, if a company files for Chapter 11 bankruptcy, the cards may lose all their value because gift cards are considered unsecured debts. Another risk is the unauthorized use of the gift card, depleting most or all of the value of the card. Similarly, billing errors can have the same negative effect. Finally, there is always the chance that the recipient will lose the card.

Unlike other forms of electronic payment, the buyer of the gift card is responsible for many of the risks cited above. There is little or no protection offered by the card seller. Further compounding this situation, gift card merchants do not normally provide a statement of activity that be tracked to ensure accuracy (although this information is sometimes available on merchant websites).


Every year, U.S. consumers fail to redeem billions of dollars in unused gift cards. Common reasons cited for not using gift cards include a dislike or lack of time for shopping and a disinterest in the merchandise sold by the gift card retailer. A little thought into the type of card to purchase, then, would go a long way in minimizing this risk.

Since there is currently no uniform set of regulations for gift cards, rules vary greatly by state. You should carefully review and understand the terms and conditions for the cards you intend to buy to ensure that there are no surprises for you or for the recipient. Information on restrictions and rules for specific gift cards can sometimes be difficult to obtain but can usually be found on the card itself, on the packaging, or on the merchant’s website. Always remember, though, that gift card issuers often give themselves the right to changes the rules in any way and for any reason, often without any notification.

Despite the potential pitfalls of gift cards, they remain a convenient and wonderful gift for many occasions. Understanding what to look for when buying gift cards will make you a smarter consumer and a better gift giver.

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