With the holidays approaching, you may be tempted to buy a piece of plastic instead of a tie, jewelry, or some other “risky” item. While a gift card can be an easy way to make someone happy without having to guess taste or need, be aware that you could be paying a premium for the convenience if you don’t shop around first.
There are two basic varieties of gift cards:
Store gift cards, which can only be used at a particular retail establishment. These tend to have no or very low fees.
“General-purpose” gift cards sporting the American Express, Visa, or Mastercard® logo, which can be used virtually anywhere. While general-purpose gift cards can be more fee-heavy (which can erode the value of your giving dollars), the shopper isn’t limited to one specific store, and they can offer maximum shopping flexibility.
Gift cards are easier to use than paper gift certificates, safer than cash, and more festive than a check. Just figure out how much you want to spend and choose a store or financial institution. All the recipient has to do is shop. In the case of the general-purpose card, the “giftee” can even take out cash at an ATM.
Gift cards can also be used as an effective tool to introduce the concept of credit to children and young adults. Since gift cards look and act much like credit cards, if you give one to a minor they will begin to become accustomed to using plastic. There will be no bill to pay at the end of the month, but there is a limit on how much they will be able to spend, so they can learn to be savvy consumers early.
Thanks to the Credit CARD Act of 2009, the balance on a gift card cannot expire for at least five years from the date of purchase or last reload. The Act also prohibits inactivity or service fees in the first year, and after the first year there can only be one fee assessed per month. However, if fees are charged after the first year, be aware they can erode a balance quickly, thus “expiring” your balance well before the CARD Act’s five-year expiration.
Because general-purpose cards have more flexibility, they also can come with more extensive fees. Be sure to weigh the costs and compare products before you buy one. The terms will be listed on the disclosure. Fees can include but are not limited to:
Purchase fees. When you purchase the card, you could pay a fee based on the denomination. The lower the dollar figure, the more expensive, ratio-wise, a flat fee becomes.
Activation or closing fees. If the recipient wants to activate or close the card out for the remaining stored value, he or she may be charged an “activation or closure fee” to do so.
Dormancy or inactivity fees. According to the gift card provisions of the Credit CARD Act, if there is a period of inactivity of at least one year, institutions could charge a monthly “service fee” to keep the card active.
Reload fees. Want to add more money to your card? Watch out for the balance reloading fee.
Card replacement fees. Lost or stolen cards may be replaced with a new card for the remaining balance for a “reissue fee,” so it may not be worth the effort if the remaining value is small.
Shipping fees. Like most products ordered online, gift cards could also have a shipping charge depending on the amount purchased.
Other miscellaneous fees. While many general-purpose cards allow ATM access, the transaction fees can be steep. And if the card is used at an ATM not owned by the issuing financial institution, even more charges will be deducted. Service fees are another consideration. Want to speak to a customer service agent? There could be a fee for that too!
Gift cards can indeed be a great present. But before you buy, shop around for a card with the least amount of fees and restrictions. That way your dollars will stretch the furthest and your loved one will reap the most from your generosity.
Source: Balance Financial Fitness
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