Beware of gift card fees

(MoneyWatch) Gift cards, one of the hottest holiday gifts, often come loaded with fees that can vastly diminish the value of the card, according to new research by BankRate.com.

BankRate surveyed 63 different gift cards and found that the eight that could be used at any store all levied purchase fees ranging from $2.95 to $6.95. In addition, 75 percent of these cards charged either "dormancy" or "maintenance" fees of up to $3 per month after the first year. Some issuers also charged additional fees if you used the card at an ATM or inquired about your balance.

Conversely, the cards issued by a single retailer, such as Nordstrom's, Target or Costco, rarely charge a fee to purchase or maintain the card. However, these cards can only be used at that one issuing retailer.

"The key takeaway for consumers is that they're going to get the most value from store-branded gift cards," says Janna Herron, credit card analyst at Bankrate.com. To be sure, general purpose gift cards can be used anywhere, she added. "But because of the fees, you would be better off giving cash."

In fact, while gift cards have become popular because they give the impression that more thought was put into their selection, cash may always be the better gift. Although store-branded gift cards don't charge as many fees, they're also often left to languish. Industry experts estimate that 20 percent of the $100 billion in gift cards issued each year go unused -- roughly $20 billion each year.

That's created a booming market for second-hand gift cards, which consumers can buy and sell at a discount. Web sites such as Cardpool.com, GiftCardGranny and PlasticJungle will allow you to sell your unwanted gift cards -- or buy someone else's -- but you sell at a discount to the card's actual value.

If you want your recipient to get the best deal, spend time looking for a really great and thoughtful card and then fill it with cash, not a gift card.

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