Buying Better Holiday Gift Cards
Over 55 percent of adults, according to the National Retail Federation, say they want to receive a gift card this holiday season. Gift cards are the most requested gift, and the No. 1 present for the sixth year in a row.
So why exactly are they so popular?
They're easy, convenient and you don't have to picking the wrong size, and color, according to "Early Show" financial contributor Vera Gibbons.
"They work well as last minute gifts, and they're more accessible than ever these days," she said. "You can find them anywhere -- at retailers, drug stores, and even grocery stores."
In our "Ask It Early" series, Gibbons answered viewers' questions on the best way to use and buy holiday gift cards and certificates.
MaBelle Bray, of Los Angeles, asked Gibbons, "If you lose or misplace your card, does the store keep a backup record of your store credit? Why don't the stores keep a backup system for lost cards?"
Gibbons' Answer: Losing or misplacing gift cards is a huge issue. In fact, 25 percent of consumers have a gift card from last holiday season that they have not gotten around to redeeming. And about 10 percent of all gift cards go unspent every year, that's about $8 billion worth of gift cards that go to waste.
The good news is that retailers are getting better about this every year. A growing number of retailers, from Macy's to Starbucks now allow you to register your card online so that you can take advantage of your credit, whether the card is lost or misplaced. Stores are doing this because they want you to redeem them. They can't book a sale of a gift card in their book of revenue until they are redeemed. And they know that when we redeem them, we spend, on average, 30 percent more than the card's face value.
In an e-mail Sean Erno, of Minneapolis, Minn., asked, "Is it better to give someone a Visa, Amex or MasterCard gift card you can use anywhere or a gift card for a specific store like Best Buy?"
Gibbons' Answer: If you know that the recipient of your gift likes a particular store, restaurant, or brand, get a retail card.
Most major national retailers such as Best Buy, Lowe's or Starbucks have dropped their gift card expiration dates, their monthly inactivity fees and other traps that have eaten away at the card's value over time. There is no fee to buy these cards from big national chains, and usually the terms of purchasing and keeping these cards are very simple. That is not the case with general purpose credit card gift cards, such as Amex, Visa or Master Card. Sure, these cards are popular because you can use them anywhere, but they are riddled with all sorts of fees and fine print. Most charge $5 to $7 just to buy them. Chase, Wells Fargo, and HSBC will hit you with a $2.50 a month fee if the card is not used within a year and replacement fees of up to $12 if you lose it.
If you insist on a general purpose card, Amex is really your best bet. It costs $6.95 to buy it, but Amex has done away with all of the other fees, so you can rest easy after spending the initial money.
When the new credit card laws go into effect next year, that will help lift some of these restrictions and expirations. There are several protections for gift card users that kick in next year. For instance, you will have more time to use gift cards before they lose value (rather than expiring in a year or two, as they do know, they won't expire for five years or so after issue). And there are provisions in there that will also restrict inactivity fees as well.
Gwen Conley of Los Angeles asked via e-mail, "What happens if a store goes bankrupt -- is your card still valid?"
Gibbons' Answer: Good question. We have already seen a bunch of retailers go belly up such as Circuit City, KB Toys, Fortunoff, Sharper Image and Linens n' Things.
There is a lot of talk in the industry about who will be next. In terms of whether or not the card will still be valid, the answer is -- it depends! Some companies will honor cards for a bankrupt company, some will not. You could end up with a card that's worthless. And in other instances, a competitor may honor the card, so you need to call the retailer to find out. It all depends on how the retailer decides to handle their bankruptcy. You are at the mercy of whatever retailer you hold a card for.
You should redeem your cards as soon as you can. It minimizes the chances of losing a card, and forgetting it. It's also your best defense against expiration dates and inactivity fees. Always make sure you read the card's fine print.The devil is usually in the details.
Also, make sure you inspect the card before you buy it. You always need to make sure the card has not been tampered with, that the protective stickers haven't been removed, and that the codes on the back of the card haven't been scratched off to reveal a pin. Many criminals will get the serial number off the back of the card, wait a couple of days for the card to be activated and then shop online.