Playing the gift-card game

Retailers’ cards come with fewer strings attached than ‘use anywhere’ plastic, study shows.


Gift cards continue to grow in popularity, with some industry experts anticipating that almost seven out of 10 consumers will purchase one this holiday season. But some cards come with a price attached, according to a study released Monday by Bankrate Inc.

The third annual holiday gift card study looked at 38 plastic cards and seven electronic cards from the country’s top 25 retailers, as ranked by the National Retail Federation. It also researched "use anywhere" cards from the four top credit-card issuers: American Express, Discover Card, MasterCard and Visa. The report is online at www.bankrate.com/giftcardsurvey.

All "use anywhere" cards carried fees, while retailer-specific cards rarely did. It’s a logical difference because so-called "open loop" cards make money from the fees they charge, while retailers profit from merchandise purchased with their "closed loop" cards. Customers also often spend more money at a shop than the amount on the gift card.

The average delivery fee on a gift card from a major credit card company is $3.60, according to the report. Discover Card, for example, charges $3.95 for each gift card, or $6.95 for a premium card package, which comes with a matching greeting card and envelope.

Last year, Discover didn’t charge shipping fees for its gift card, according to Bankrate.

Major credit-card issuers also charge maintenance fees of $2 to $3 a month if the consumer doesn’t use the gift card within a certain time period, the study found.

American Express was the sole "use anywhere" card that didn’t have an expiration date, but it still charges a $2 monthly service fee beginning 366 days after the purchase date. Discover Card gift cards, on the other hand, expire in 24 months and charge a $2.50 monthly fee if the card isn’t used for 12 consecutive months.

Still, "use anywhere" cards are growing in popularity, said Ellen Cannon, assistant managing editor at Bankrate.com.

"They’re an easy gift," she said, adding that they’re popular among companies that give gifts to their employees and among grandmothers who have no idea where their grandchildren shop. "It makes it easier for the recipient and the gift-giver to be happy with the result."

But the best bet is to figure out which stores the recipient patronizes, Cannon said. Retailers are moving away from imposing expiration dates on gift cards.

Sears, for example, no longer imposes a five-year expiration date on its plastic gift card, and Costco eliminated its two-year expiration date on its electronic gift cards, according to the study. Electronic gift cards are purchased online and e-mailed to the recipient.

The moves coincide with legislation passed by 13 states that prohibit expiration dates on gift cards, according to the report. Some states have also passed laws forbidding companies from not allowing consumers to redeem their cards for cash, the study found.

But beware: Some retailers still charge dormancy fees, which apply monthly after a set time period.

Gift-card buyers also need to understand where the card can be used. Of the electronic cards researched in the study, only JCPenney allows its e-cards to be used for in-store purchases.

Wal-Mart, Costco, Target, Macy’s, Bloomingdale’s and Kohl’s allow their electronic gift cards to be used only for online or catalog items. Some stores, however, allow customers to use store-bought cards for online purchases, Cannon said.

"Most of them are pretty clear," she said of the terms and conditions - if you take the time to read them. The last thing a customer wants to do is buy an e-card that is restricted to online purchases for a grandma without a computer, Cannon said.

Also, remember there is a secondary market for unwanted gift cards should the recipient want to trade their cards in for others or for cash, she said. Cardavenue.com, PlasticJungle.com and Swapagift.com are a few sites where consumers can trade in cards.

McClatchy Newspapers