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 If you are like me and you struggle with finding the
best gifts for the people in your life, gift cards may be the
perfect solution. Gift cards provide a seemingly easy way to shop
for others. It is hard to tell if buying gift cards reduces the time
and energy we put into picking out gifts since we also put a lot of
energy into choosing the right card. Nonetheless, it allows for some
flexibility (i.e. the receiver decide what gift to buy).
Types and Protection
What do you know about how gift cards work or the laws that govern
this type of currency? Let's start by exploring the types of gift
cards.
There are two main types:
• Retail gift cards (closed-loop cards) that are available and
redeemable at the retailers (i.e. stores) and restaurants that sell
them. These typically do not have activation or inactivity fees.
• Bank gift cards (open-loop card) are a part of payment card
networks such as Visa, Discover, MasterCard or American Express.
Gift card holders can use this type of payment where they are
accepted. These types are also referred to as general-purpose cards,
and they typically have activation fees of $2.95-$6.95. They also
may have inactivity fees (if it hasn't been used within a given
period, e.g. 12 months).
The primary differences between retail and bank gift cards are the
fees, flexibility, and restrictions. Deciding whether it is worth it
to pay a fee between $2.95-$6.95 for an open-loop gift card is an
important consideration. Here is an example; you need to get two
$100 gift cards for your [twin] nieces' birthday. You absolutely
adore them and you chose to buy bank gift cards because you want
them to pick out something they really want. If you pay $3.95 for
each $100 card, that amount adds up to a total of $207.90. The extra
dollars spent may be worth it in this situation, but in others, it
might not.
While gift cards are a great way to shop for the people in your
life, it is important to pay attention to how you purchase these
cards and the policies that govern your purchase – know your rights. [to top of second
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The Credit Card Accountability, Responsibility, and Disclosure
(CARD) Act of 2009 added guidelines and protections for credit cards as well as
gift cards. A key protection established a minimum of five years before the card
expires.
Both federal and state regulations for gift cards offer
protection for consumers. Federal law supports an inactivity fee for cards that
haven't been used within 12 months. However, in the state of Illinois, store
cards do not expire or charged a fee because of previously existing state
regulations. This does not apply to gift cards issued by credit card companies
or multiple merchants. The laws also do not cover rewards, promotional, or
loyalty cards.
A Few Additional Points
With the holidays approaching, planning for gifts helps prepare you for the
overall cost of buying gift cards.
• Consider creating a savings plan that gives you enough time to save for the
cards you need. For example, if you need to get five $25 gift cards for your
five young nephews, you can create a goal, which helps you save weekly or
biweekly to reach that $225 goal.
• If you use your credit card to pay for your gift cards, make sure to pay off
your balance or pay more than the minimum each month
• It is sometimes difficult to distinguish between a prepaid card and a gift
card. They are not the same. Prepaid cards are reloadable and intended for
reuse, gift cards are not. Some providers require that you register your prepaid
card
• Buy cards from trusted sellers in person or online and hang on to your
receipts
• Inspect the card before you buy to make sure it is not damaged, and read the
terms and policies
If you use gift cards, it is important to factor in fees, protection, and loss
(e.g. stolen, lost, unredeemed) in your decision. For any money decisions you
make, it is also beneficial to explore your options and ways to save.
[Camaya Wallace Bechard, Extension
Educator, Consumer Economics
Terri Miller, MPA
County Extension Director - Unit 16]
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