Christmas is over, and for many of us that probably means fewer ugly ties to return and more gift cards to spend as we like. Knowing the rules of the road can help you maximize the utility of those cards and minimize the potential loss of value if they lie around too long in the desk drawer.
The gift card phenomenon has literally exploded over the past 20 years from less than $1 billion in 1994 to an estimated $124 billion in 2014 according to research firm CEB. And while some may find the idea somewhat impersonal, it turns out that recipients generally enjoy receiving them as much or more than a more personal gift. A recent survey conducted for the National Retail Federation showed that gift cards are the preferred present for an eighth straight year.
But not all cards are alike, as some consumers have discovered to their dismay. CEB estimates that $44 billion in value has simply evaporated since 2005 due to expiration, and they predict that another $1 billion will go unused this year. So understanding the terms and conditions applicable to your various cards is important to get the most value out of them.
Industry data suggests that about half of all gift cards are issued by retail stores or restaurants. As a general rule, these types of card do not carry an expiration date and do not assess inactivity fees. While it pays to verify the terms with the issuer, the biggest risk with most of these cards is loss of the card or the insolvency of the merchant. Think Borders or Linens n' Things.
A little over one third of all cards issued are called "open network" or branded cards, and carry the logo of one of the major credit card issuers (Amex, Visa, MasterCard or Discover). These cards are typically subject to expiration dates and inactivity fees, and should be spent as soon as possible to avoid forfeiting value. Federal law regulates expiration and allowable fees, and recipients should carefully read the terms and conditions printed on the back of the cards.
Note that certain types of cards like reward or rebate cards are exempt from these Federal regulations and can expire very rapidly. Again, read the terms and hit the mall.
If you find yourself the proud owner of a gift card from a merchant you are unlikely to patronize, consider exchanging or selling the residual value on one of several gift card exchange sites. Cardpool, CardHub and GiftCards.com are just a few of many sites that will offer to buy your unused cards at a discount of as little as 10 percent depending upon the popularity of the issuing merchant. Amazon and Starbucks cards bring close to full value; Rocco's Tattoo Emporium not so much, but even 50 cents on the dollar is better than nothing.
Meanwhile, Walmart has introduced a fascinating alternative in conjunction with exchange site CardCash.com. Log onto Walmart.cardcash.com and you can get an immediate bid to sell any of 200 merchants' gift cards in exchange for a Walmart eGift card that can be used in-store or online. Values range as high as 97 percent of face value, again depending upon the merchant.
Gift cards have gained dramatically in market share thanks to their convenience and flexibility. Knowing the ground rules and laying out a plan to spend your cards promptly can assure that you get the most bang for your plastic buck.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. Investment Counsel.