Gift cards: the advantages and disadvantages
Everyone loves to receive and give gift cards for special occasions. They reduce the stress of worrying if the recipient will like the jeans or shirt you bought them. They eliminate the fake smile and “I can always wear a new pair of jeans” routine from the person receiving the gift. However, beware of risks and hidden costs when using your gift card.
Consumer Benefits
Gift cards are becoming more and more popular every year. In general, there are three different cards: store-specific gift cards, restaurant gift cards, and general-purpose gift cards. Store-specific gift cards are meant to be used at the particular store and typically come with less hidden fees. Some stores like Old Navy and Banana Republic have become partners and allow their customers to use the gift card at either store. Restaurant gift cards are very similar to store-specific gift cards. They let you go and have a nice dinner as a gift. Just be sure to tip the server the same percentage as you would if you were paying the full bill. General purpose gift cards give the consumer a wider range of where to use the card. These types of cards are usually Visa, MasterCard, or American Express and can be used anywhere major credit cards are accepted. Flexibility is the main benefit of using the general purpose card. You can fill up your gas tank, go out to eat, buy concert tickets, or whatever else you want to do with it.
Consumer Disadvantages
Many general purpose cards come loaded with fees. According to The Lowdown on Gift Cards article on Bankrate.com, some gift card programs will issue you another card if your card expires. These replacement cards will cost you between $5.95 and $10. If you apply for the card online or by phone, you will be charged a shipping and handling fee of $4.95 to $8.95 and a service fee of $3.95 to $11.95. Some gift cards will charge you a monthly maintenance fee if you still have a balance on your card after six months or a year. If you still have a balance after this time period, a $2-$3 monthly fee applies.
If your gift card is lost or stolen, good luck! Some retailers will not replace a lost gift card. Other retailers like Macy’s and Bloomingdales are more forgiving and will issue you a new card if you can provide a receipt showing your most recent purchase. Some general purpose cards will cancel the missing card and reissue a new one for a fee of $5.95 to $10.
So be sure to keep your card in a safe place, use it before it expires, and buy it directly from the merchant and you’ll avoid most of these fees.
retailers
According to the CBC News Online article Retailers Just Love Them, gift card sales skyrocketed from $1 billion in 1995 to an expected $70 billion in 2006 in the United States. As of 2004, 68 percent of major retailers offer some type of gift card. The number is probably even higher now that it’s 2006. Coffee giant Starbucks has estimated that 10 percent of all its sales come from gift cards.
Another reason retailers love gift cards is that consumers pay less attention to sales and tend to spend more than they have on the card. Retailers note that consumers will spend the full amount on the card and have a small balance of $2 or $3 left. Shoppers will most likely never use the card again and this works to the benefit of the retailer.
One more bonus for retailers is that instead of just getting the Christmas rush and then being prepared for Christmas returns, they actually get a double rush. Since consumers give gift cards as holiday gifts, the gift card holder will usually rush to the mall after the holidays to spend their cards. This translates into a significant reduction in returned merchandise.
There are some downsides for retailers. Gift cards can cost the retailer between 50 cents and $3 per card, depending on how many are ordered. There are also implementation costs of up to $50,000. The implementation costs cover all initial fees related to the production and tracking of the gift cards.
gift card exchange
Internet companies have recently created websites that allow people to sell or trade unwanted gift cards. EBay jumped on this idea and now has over 7,500 gift cards listed for sale or auction. This can be a good idea if you receive a gift card from a particular store and you don’t like anything in that store. You can exchange these cards at these sites for other cards or even cash. Sites like SwapAGift.com and CardAvenue.com are good sites that offer this service. At CardAvenue.com, you can even purchase gift cards at a reduced price. For example, you can buy a $25 Office Depot card for $17; That’s another way to save.
Copyright 2006 Debt Management Credit Counseling Corp.
