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World's worst gifts? Gift cards

(MoneyWatch) Gift cards have become a $100 billion industry and one of the hottest holiday gifts because they give parents, grandparents and friends the illusion of giving a more thoughtful version of cash. But, did you know that roughly 20 percent of the gift cards that are purchased each year just languish in a drawer?

CouponTrade.com, which makes a market in re-selling gift cards at a discount, says that some $55 million worth of cards actually expire each day, racking up profits for merchants while wasting your hard-earned cash.

Thanks to the Credit Card act of 2009, any gift card issued after Aug. 22, 2010, cannot expire for at least five years. But retailers can charge a range of fees on the cards, which can eat up their value in no time.

Consider recent 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 and are the type of card most likely to expire without ever having been used.

In fact, so many people get gift cards that they don't like that an entire industry has been built up around buying and re-selling the cards at a discount. A cacophony of web sites including Coupon TradeGiftCardGrannyCardPoolPlasticJungleGiftCardRescue and CardCash.com, will offer to buy the unused (or under-used) gift cards in your wallet for anywhere between 50 cents and 90 cents on the dollar. Likewise, if you want to buy somebody else's unused gift card, you can get them at discounts ranging from 5 percent to 20 percent.

The key takeaway for generous gift-givers? If you really don't know what someone wants, consider giving them cash. If you must buy a gift card, think about buying one at a discount on one of the many resale sites. At least then your recipient will get more than you paid for -- assuming that they actually do use the card.