If someone gave you a $50 bill, you probably wouldn't just stick it in a drawer and forget about it. But that's essentially what happens to billions of dollars worth of gift cards people receive each year -- they either lose or forget about them, or never use up their balances.Final 2010 holiday sales numbers aren't in yet, but the National Retail Federation expected a 4 percent increase in 2010 over 2009, so chances are you got more gift cards in your stocking than in the past. Here's a basic primer on how gift cards work. There are two basic types:
- Retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants.
- Network-branded gift cards, which are issued by a bank and carry the logo of a payment card network (like Visa, MasterCard or American Express) and can be used at any location accepting cards from that network.
Account information is stored in the card's magnetic strip. If you're not sure of the remaining balance, ask the merchant to scan the card, call the toll-free number on the card or look it up on the card issuer's website provided. Many cards can be reloaded for multiple use; and most can be replaced if lost or stolen -- although you may have to provide proof of purchase and pay a replacement fee.The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 changed the laws governing gift cards sold on or after August 22, 2010. It requires that:
- Money loaded on gift cards must not expire for at least five years from the date of purchase or after funds were last reloaded.
- If the card itself expires but the funds in the account haven't, you can request a free replacement card.
- Inactivity and service fees may not be charged until after 12 months of inactivity; after that, only one such fee may be deducted from the balance each month. These restrictions apply to monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, such as reload fees, ATM fees, and point-of-sale fees charged by the card issuer. (Fees for activation or lost/stolen card replacement are exempt.)
- Fees must be clearly disclosed on the card or its packaging. (However, Congress agreed to extend until January 31, 2011, the deadline for printing disclosure language on cards themselves if produced before April 1, 2010, to avoid having to destroy millions of existing cards.)
If you own gift cards issued before August 22, 2010, note that prior rules may apply. Also, these new rules do not apply to other types of prepaid cards, such as reloadable prepaid cards not marketed or labeled as a gift card or gift certificate, and prepaid cards received through a loyalty, rebate, award or promotional program. Paper gift cards and gift certificates also are excluded.Here are a few tips to get the most out of your gift cards:
- Use them quickly; the longer you wait, the more likely you are to forget or misplace them.
- Use the same handling precautions as you would with cash; in addition, write down all account numbers and related toll-free numbers in case you need to report a lost or stolen card.
- Retain spent cards until you're sure you won't return purchased items -- some retailers won't accept a return without the card.
- Ask if the retailer will honor the card for online purchases, if that's your preferred shopping method.
- Be sure to use up the entire account balance, or ask if a cash refund is available. You may be able to use multiple cards for a single purchase -- for example, if you have several low-balance Starbucks cards.
If you don't care for a particular retailer, consider trading gift cards with friends. Or check out some of the websites that have sprung up where you can buy, sell or swap gift cards, such as CardHub, Plastic Jungle, and Swapagift.com. Some even allow you to donate the sales proceeds to charity. Just make sure you understand any transaction or registration fees or commissions that may be charged.A few additional safeguards to remember:
- If you have a retail gift card and the company goes out of business, you may forfeit the balance.
- Be aware that digital gift cards (e.g., for iTunes or Amazon), sometimes get caught by your computer's spam filter, so you may not be aware they've been sent.
- Be cautious when trading cards with strangers. For example, if using a third-party exchange site, ask about their verification policies and check with the Better Business Bureau for any complaints.
- Avoid unsolicited offers that sound too good to be true; for example, Facebook has reported scam artists posting bogus links and fan pages that offer free cards, which, if accessed, can harvest personal information.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to Practical Money Skills.