10 Things You Need to Know About Gift Cards

Gift card display in a storeAccording to a recent report from the National Retail Federation, clothing and gift cards are expected to be the most requested items on American wish lists for 2010, and while reindeer sweaters can be easily exchanged, Bankrate.com says there are ten things consumers should know when buying a gift card.

First, there's a difference between gift cards that are store specific, or "closed loop" (think: Barnes & Noble, Starbucks, Macy's), and those that spend like a branded credit card (i.e., American Express, Visa, MasterCard) which are "open loop." Still with me?When buying a closed loop card, consumers usually don't pay additional fees, the value of the card does not decrease over time and none of them expire. The same is not true of the open loop cards.

Eight out of eight open loop gift cards surveyed by Bankrate charged a purchasing fee up front.

Six out of eight open loop cards surveyed were found to have expiration dates, with the exceptions being American Express and Discover, which had "valid-thru" dates. In those cases, if the card expires, the consumer can request a replacement card containing the remaining amount of money and an extended valid-thru date at no charge.

Thanks to gift card rules that went into effect last August as part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the CARD Act), gift cards must remain valid for at least five years.

Good news, except it doesn't necessarily mean your money will still be there. Gift card issuers are allowed to charge maintenance fees and inactivity fees after 12 months if the card has not been used or used up completely. Most open loop cards take advantage of that privilege. In Bankrate's survey, gift cards from Chase Visa, Discover, Fifth Third Bank MasterCard, KeyBank MasterCard (only for cards issued prior to Aug. 19, 2010), and US Bank Visa all charged inactivity, or maintenance, fees of $2.50 per month beginning 12 months after issuance. That will eat up $30 of your gift within a year. The Grinch stealing presents and candy canes from under Suzy Lu Hoo's tree comes to mind.

Research from Network Branded Prepaid Card Association revealed, however, that 95% of gift cards are used within the first year. Still, something to think about for the 5% of us who tend to hem and haw a bit while shopping.

Bankrate also advises consumers to consider giving cards that can be shipped for free to your recipient, or those that offer e-card options and will be delivered directly to an email inbox.

Similarly, thoughtful gift card giving might include checking to see if the gift card allows users to check their balances online. According to the Bankrate survey, most cards do.

For the forgetful, or those of us I prefer to call "creatively organized," some gift cards also offer lost or stolen protection. Bankrate reported, "A majority of the cards in our survey offer to replace the card or funds after a loss. Limitations vary, however, and a fee may apply."

To avoid fees and in fact, save money while shopping for gift cards, check out Plastic Jungle and Gift Card Granny, two sites noted by Kiplinger.com and WalletPop for doing a good job of selling gift cards priced at less than their face value.

Of course, for many, perhaps the most important thing to know about gift cards is that the National Retail Federation reported 63.8% of women surveyed in 2010 said they'd like to receive one this holiday season. Santa, are you listening?

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