The Hidden Costs of Gift Cards

Gift cards are a great way to show your appreciation to someone. Next to cash, there is nothing that is quite as convenient.  And with the holidays fast approaching, you can be sure that they will be distributed by millions.

But there are some caveats to using gift cards that most people don’t realize. While they do offer incredible flexibility and convenience, they also come with costs. First off, in order to be profitable they cost more than they are worth.

There are monthly fees charged against the card’s balance that usually kicks in, on average, six months after the card has been issued. American Express, for their part, recently dropped their monthly charges on its general-purpose gift cards.

A federal law has also been passed that will prohibit companies from charging fees on gift cards in the first 12 months of their issuance. That law however, will not go into effect until August 2010.

In the vast majority of cases store issued gift cards are different than bank issued gift cards. The store issued gift cards work out great for retailers because they must be spent at their store. And they really work out great for them when they go on unredeemed. That happens more than you may think.

When we take a closer look they are in fact a windfall for retailers. A Consumer Reports study conducted in 2007 found that of the consumers surveyed that received gift cards, a full 27% said they hadn’t used theirs in the past 12 months.

The reasons are varied but predictable including not having the time to use it, not finding merchandise that they wanted, or just plain forgetting they had the card to begin with.

While gift cards do not have expiration dates, they don’t on the other hand last forever either. Some states even have laws on the books that seizes the balance on unused gift cards as unclaimed property after a set period of time. Illinois, the home state of is one of them

The bottom line here is that there are costs of using gift cards and they differ from bank cards to store credit cards. With that in mind take a few minutes to fully understand what the terms of the various cards are if you are giving one away or if you have yourself received one.

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