Gift cards top a lot of people’s holiday wish lists again this year. According to a survey done for the National Retail Federation 57 percent of Americans say they want to receive a gift card, 77 percent plan to buy at least one this holiday season.
I’ve always had a problem with gift cards. Unlike cash, they can expire or have costly fees. But this year, thanks to the Credit Card Accountability, Responsibility and Disclosure Act of 2009, some of the worst “gotchas” are gone or restricted.
Expiration Date. Any card sold after August 22, 2010 cannot expire for at least five years from the date of purchase or the last time money was loaded onto it.
Fees. You cannot be charged an inactivity fee until the card has gone unused for at least 12 months. You can never be charged more than one fee of any kind per month.
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Replacement Charge. If your card expires and there’s still money left on it, call the card company and ask them to send you a new one. They must do this for free or return the remaining balance. There can be a fee to replace a lost or stolen card.
These new rules do not apply to rebate cards, promotional cards or those purchased at a charity event. Paper gift certificates are also exempt.
It's in the cards
“Though the Credit CARD Act provides a reasonable amount of protection, you still have to be a little cautious with a gift card,” says Steven Gill, an associate professor of accounting at San Diego State University. “It’s not as if you’re perfectly safe with a gift card as you’d be with cash or a check.”
Some states have stronger rules that give you more protection if the gift card is purchased from a retailer in that state. (Check the laws in your state) For instance, in California and Minnesota a retail gift card can never expire. In Massachusetts and Washington, a card with $5 or less on it can be redeemed for cash.
Two types of gift cards
General-purpose gift cards, the ones issued by Visa, MasterCard, American Express and Discover can be used wherever those cards are accepted.
“But that flexibility comes at a price because those cards carry more fees,” notes Greg McBride, senior financial analyst at bankrate.com.
According to the 2010 Gift Card Survey by bankrate.com the upfront fee to buy a general-purpose card ranges from $3.95 to $6.95. That’s on top of the face value of the card. The average inactivity fee (after 12 consecutive months) is $2.50 per month.
Retail cards are limited to that one merchant, but they’re typically more consumer-friendly. They rarely have fees or expiration dates and you can often have them shipped for free.
“To get the most value, stick with a retail card where there are no fees,” McBride advises.
Some disclosures will be confusing
The CARD Act requires companies to list the fees and any expiration date on the back of their cards. But that won’t happen in every case this holiday season.
This summer, Congress voted to delay the date for mandatory disclosure until January 31, 2001 — but only if the card was made before April 1.
“Unfortunately, through this holiday season, issuers are still allowed to sell gift cards that have incorrect expiration dates and inactivity fee schedules on the back,” warns Suzanne Martindale with Consumers Union, publisher of Consumer Reports.
In such cases, card companies are required to post signs at the point of sale, but obviously the person receiving the card never sees that information. Later, when they try to use it, the card might be refused because of the invalid expiration date.
My advice: If you receive a card with the wrong expiration date and you don’t plan to use the full value of the card right away, call customer service and request a new one. The law gives you the right to do that.
Discounts are widely available
Why pay retail when you can get a gift card below face value? Warehouse club stores usually sell gift cards below face value. For example, at Costco right now you can get $100 worth of cards to Baja Fresh, California Pizza Kitchen or Wolfgang Puck’s for just $79.99. That’s 20 percent off.
Check stores and restaurants in your area to see if they have any gift card promotions. For Hanukkah, my wife bought me a $100 gift card to a store where I shop for just $75. One of our favorite local restaurants gives you a $20 promotional gift card when you buy a gift card of $100 or more. Since we’re going to eat there anyway, this is a real money saver.
There are also websites, such as Plastic Jungle, Gift Card Granny, Cardpool, GiftCards and GiftCardRescue that specialize in discounted cards. They buy unwanted cards at less than face value and pass along the savings. The discounts typically range from 5 to 15 percent, but can be even higher.
Many of the cards on these sites have odd balances which can make them less attractive for gift giving. But with just a few clicks, I found a $100 J. Jill card for $85 (15 percent off), a $50 Macy’s card for $44.50 (11 percent off) and a $100 JCPenney card for $70 (30 percent off).
“It’s a popular concept and a growing business,” says Kristin Donelson, vice president of marketing for Plastic Jungle. “You get to give a bigger gift than you paid for and the recipient will never know.”
If you go this route, stick with companies that provide a guarantee that the card is good. And look for free shipping. Never use an unknown site unless you check it out with the Better Business Bureau or search the Web for complaints.
What to do if you get a gift card
The first thing you should do is write down the number of the card and put it in a safe place. You’ll need that number if the card is lost or stolen.
If you get a card, use it before you put it in a drawer and forget about it. A survey done last holiday season by Consumer Reports found that one in four people who received a gift card the previous year had not used it. Remember; if you have a retail card and that store or restaurant goes out of business, you’re out of luck.
Professor Gill at San Diego State says this is a wonderful time to dig out the gift cards you already have and use them. Remember, those cards were purchased under the old rules. So they can expire sooner than five years and be dinged with monthly inactivity fees.
One more thing: before you head to the store to spend your gift cards, set a budget. Bill Hardekopf, CEO of LowCards.com says two-thirds of the shoppers who use a gift card spend more than the card’s value. That’s just what merchants are hoping you’ll do.
© 2013 msnbc.com. Reprints