With the Christmas shopping season upon us, more and more of us will be drawn to the gift card. It's quick to purchase, doesn't require wrapping, allows the recipient to choose something he or she really likes, and is one-size-fits-all -- no embarrassing bodily measurements required. That's definitely a compelling list of perks. But don't let the convenience blind you to its potential faults. Get the real scoop on the gift card and whether you should buy or stay away.
Is my gift card as good as cash?
Depends on how you look at it. If you give cash, there are absolutely no restrictions on how the recipient uses the money. With gift cards, however, there can be a whole host of restrictions listed in the fine print that can eat away at your initial investment, leaving your recipient with less than the full amount of the intended gift. Conscientious gift-giver that you are, you'll want to check the following:
- The date of expiration on the card. The clock typically starts ticking when the card is "activated" on the date of purchase. To give your gift recipient as much time as possible to use the card, you'll want to purchase it at the last minute. Who knew that procrastination could pay?
- If any maintenance charges or replacement fees will be charged. Some sneaky card sponsors will "tax" the recipient if they let the card lie around. Others will apply the use-it-or-lose-it rule. Make sure the recipient knows when the card expires.
- If it can be used for online purchases. Most merchants allow their store-sponsored gift cards to be used at their online site, but beware generic prepaid cards that may not be honored online.
- If the card issuer charges shipping if you purchase the card online. Don't pay to ship a dinky piece of plastic; choose another retailer that will send a card for free.
- If there are limitations on the type of merchandise that may be purchased. Can your gift be used to purchase anything in the store? If not, the store's policy stinks.
- If the card's sponsor will issue a new card if the original is lost or stolen. Accidents happen. Find out how the gift card sponsor handles life's little curveballs. Some gift card issuers will actually make you pay a fee of $5 to $10 to get a replacement card. Be sure to pay for the gift card with a credit card so you have a paper trail.
- If the remaining card balance can be turned into cash. Retailers rack up profits from the odd remaindered amounts on gift cards. Make sure that instead of padding the store's profits, your gift recipient can get the full value out of the card.
- If the company is in trouble. Gift card balances are treated as unsecured claims if a company goes bankrupt. That means you probably won't get full value, so be sure to spend any gift cards from iffy issuers quickly.
With billions of dollars lost to consumers because of unclaimed gift cards, you'll want to give some serious thought to whether or not a gift card is the most thoughtful gift you can give. The bottom line? If the card comes with too many restrictions and potential pitfalls, you're better off giving your recipient cash or a check. After all, cash never expires.
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This article, written by Elizabeth Brokamp, was originally published on Dec. 15, 2007. It has been updated by Dan Caplinger. The Fool has a disclosure policy.