A gift card seems innocuous enough, doesn't it? It might even seem like a wonderful thing -- you receive the chance to spend money in a place you like (one hopes), instead of receiving a weird object that you'll want to immediately regift.
TowerGroup estimated that gift card sales topped $80 billion in 2006, up 20% over 2005. That money represents a windfall for companies that issue them, such as Home Depot (NYSE: HD ) , Lowe's (NYSE: LOW ) , Target (NYSE: TGT ) , and Best Buy (NYSE: BBY ) . Why? Because some 10% of them go unused. Indeed, in its 2007 annual report, Best Buy cites a $27 million gain from gift cards it expects to be unused. See? Gravy.
That points to one drawback of gift cards for us consumers: We don't always remember or get around to using them! Even worse, some cards bear fees. American Express (NYSE: AXP ) has a "Gift Card for Kids," for example, that costs a whopping $10.90. And then there are expiration dates and monthly charges after a certain period of time. If you've had a card for several years, don't be surprised if it's not worth much -- or anything -- anymore.
Going down with the ship
And here's one more possibility: cancellation. As I began writing this article, I learned that Sharper Image had "suspended" acceptance of its gift cards. (This isn't unusual for companies in trouble, especially ones that file for Chapter 11 bankruptcy protection.) As I was wrapping up the article, though, there was new information. According to an AP story, "The luxury retailer said it would redeem gift cards issued before it sought bankruptcy protection on Feb. 19 if customers use them in full during one transaction and apply them toward items costing at least twice the value of the cards." The company also said that card holders could opt to wait until later, when the company might accept them with no restrictions.
Are any other companies' cards in danger of being rejected? Well, a recent AOL.com story listed 20 brands' cards that might disappear -- among them Circuit City (NYSE: CC ) and Kmart, which is part of Sears Holdings (Nasdaq: SHLD ) . The lesson here is to be careful where you buy gift cards -- and if you get one from a struggling company, you might want to use it sooner rather than later.
Finally, learn more about the most critical plastic in your wallet: your credit card. Spend time in our Credit Center, and you might leave with a lower interest rate and a plan for digging yourself out of debt or voiding identity theft.