To Gift Card or Not

12/29/2008 05:12 am ET | Updated Nov 17, 2011

To Gift Card or Not

A gift card is a beautiful thing. One size fits all, unlike a swimsuit that is guaranteed not to fit anywhere you want it to, but that's another story. Back to gift cards, the easy way out for many this holiday shopping season. But before you buy a deck of them and deal them out to your nearest and dearest, remember the plastic presents have their perils.

First you should know there are two kinds of gift cards. The Federal Trade Commission divides them into "retail" gift cards and "bank" gift cards. A retail gift card is sold by a business for use at or with that business, such as a restaurant or a boutique. These cards may have an expiration date or a "dormancy fee" meaning you're charged for not using them. These really should have a picture of Scrooge. Bank gift cards can be used at any location and carry the logo of VISA or MasterCard. These may have fees for activation, maintenance or transactions. Again Scrooge's picture would remind everyone of this. Put Scrooge in a swimsuit and you'll really get the picture. A gift card pock-marked with add on expenses can be an ugly experience for giver and "givee" alike.

Especially if you're pinching pennies you won't appreciate this one, you frequently have to pay a fee just to buy a gift card. There may be another charge for shipping if you purchase online or over the phone, with expedited delivery costing even more. Activation, maintenance, or transaction fees may be deducted from the face value of the card itself. So that $100 spending money you thought you were giving someone is really less.

Watch out where you buy! Avoid online auction sites, where gift cards may be counterfeit or were obtained fraudulently. These days especially consider the financial condition of the business and whether it has filed for bankruptcy. That could prove embarrassing if the recipient tries to use the card and finds it not worth the plastic it's printed on.

However, bankruptcy does not necessarily mean a store won't honor its gift cards. For example, Circuit City, which filed for Chapter 11 reorganization under the bankruptcy laws, continues to sell and redeem gift cards. So, the bottom line here is checking it out. Even if gift cards are still redeemable, there may be restrictions. If you're lucky, sometimes a competitor may accept the card to attract new business.

When you receive a gift card, be make sure you know how to be smart in using it. Read the terms and conditions and look for an expiration date or any fees. Many states now require the expiration date to be clearly printed on the card, but not the terms and fees. Ask the purchaser for the original receipt or the card's ID number and keep this information in a safe place. Treat your card like cash and report it to the issuer immediately if lost or stolen. You may be out the entire balance, though some issuers will give you a new card for free or assess a replacement charge. In order to find out, you will most likely need the original receipt or ID number.

Perhaps the wisest move of all is to use your gift card as soon as possible, before you misplace it and before something happens to make void. And finally, reaffirm your IQ and don't do what many very smart people do. Don't forget to check all your wrapping paper before you toss it in the trash. Your favorite gift card may be hiding inside.

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