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The Basics

11 golden rules of gift card giving

Even gift cards can make creative gifts. And in these tighter times, nothing might say 'happy holidays' like help with groceries or health care bills.

By CreditCards.com

If you're looking for the perfect gift this holiday season, consider the practicality of gift cards.

Amid rising unemployment and broader financial challenges, holiday shoppers are expected to become more budget-conscious and practical, experts say. According to research from the Hartman Group, consumers plan to spend a net 8% less on gift cards over the next 12 months compared with last year and are expected to focus on more-practical presents.

While in past holiday seasons gift cards often tended toward the indulgent, analysts predict that categories such as electronics and clothing will likely suffer this year. This year, many shoppers will spend less and put that money toward gift cards that can be redeemed for necessities such as groceries, gas and pharmaceuticals.

"At the end of the day, one of the best gifts you can give somebody in the down economy is savings on their bills," says Duncan Douglass, a gift card law specialist with law firm Alston & Bird.

For those shoppers planning on giving prepaid cards this holiday season, consider the following golden rules of practical gift card giving:

1. Reduce the cost of gifting

The relatively straightforward cost of gift cards makes it easy to stretch your gift-giving budget.

"Gift cards are still a very practical gift for the recipient as well as the gift giver," says Tim Henderson, a senior director for consumer research and advisory firm Iconoculture in Minneapolis. Henderson notes that consumers who previously might have spent $100 on a gift card for a single recipient this year may consider buying a pair of $50 gift cards to take care of two people on their holiday shopping lists.

The flexibility, choice and budgeting that gift cards allow have "always been there but are more important in today's economy," says Teri Llach, the chief marketing officer with Blackhawk Network, a provider of third-party prepaid cards.

2. Let gift card dollars go further

Choosing prepaid cards from discounters and big-box stores lets gift recipients buy more merchandise. Henderson says that such stores let recipients select a broader range of merchandise, including discounted name-brand products. Experts say that flexibility will benefit discount retailers this holiday season.

"I think you'll see the Kohl's, the Wal-Marts, the Targets will have a fairly good year" for gift card sales, says Jake Jacobs, the executive vice president of sales and marketing for ABnote North America in Boston.

Gift card distributors agree. Although revenues are down from prior years, Anne Gilman, a vice president with stored-value card marketing company InComm, points to continued strong gift card sales in pharmacy and big-box stores, as well as increased sales at discount retailers such as Dollar General.

"That is clearly where consumers are shopping. And those are the retailers whose business is experiencing strong growth," Gilman says.

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3. Give people cards that pull 'double duty'

While practicality remains key, it's not the only reason to give gift cards. Useful gifts can also have an emotional value by offering a "tangible representation of intangible emotion," says Henderson.

Ideally, gift cards can pull "double duty," offering the chance to be both functional and stylish. Some gift cards are even collectible. That combination allows a little piece of plastic to carry a lot of weight.

4. Don't limit where gift cards can be spent

While the large selection of items at discount retailers allows for greater choice, so-called open-loop gift cards provide even greater options. Open-loop gift cards -- which are typically issued by a bank -- may bear the American Express, Discover, Visa or MasterCard logo and are accepted at any store that honors the equivalent credit card. Open-loop gift cards may also allow for redemption anywhere in a mall.

Some of the decision making involved in buying open-loop versus closed-loop cards may come down to how well you know the recipients -- and what stores they prefer.

"The people you don't know that well, you tend to buy the mall (gift card), and the people you do know you tend to buy a specific store (card)," says Anthony L. Liuzzo, a business and economics professor at Wilkes University in Wilkes-Barre, Pa.

Continued: Beware of fees and expiration dates

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