The smart shopper's gift card guide

By Bankrate.com

Considering a gift card purchase over the holidays? Buy directly from a retailer if you want to save on fees.

Bankrate's third annual gift card survey reveals that cards purchased straight from retailers carry no fees, while cards from the big four credit card issuers and major shopping-mall operators come with fees and expiration dates.

Bankrate surveyed American Express, Discover, MasterCard and Visa, along with top nationwide retailers and the six largest shopping-mall operators on their plastic gift cards and electronic cards.

Gift card purchases are projected to reach an all-time high this holiday season, according to Archstone Consulting in Stamford, Conn. Its September survey predicted total sales of $35 billion this year, a 25% increase over last year's gift card sales.

• Talk back: Are you giving gift cards this year?

Comdata Stored Value Solutions, based in Louisville, Ky., projects that in the 2007 holiday season, the average gift card buyer will spend $203 on cards, a $17 increase from 2006.

Teens have embraced gift cards faster than any other segment of the population. According to Comdata, 98% of teens 14 to 19 have bought or received a gift card.

Why so popular?

Not surprisingly, the primary driver for the growth of gift cards is that they allow recipients to choose what they want.

"The desire of the gift giver is to help the recipient," says Tim Sloane, the director of the Debit Advisory Service of Mercator Advisory Group in Waltham, Mass. "They think, 'When I give someone the gift card, I hope they'll use it on something they really want.' If they decide to buy something that they couldn't have and now the gift card makes it attainable, that's good, too. As a recipient, I would remember what it was that helped me get that gift. Satisfaction with gift cards is great."

Dan Horne, a marketing professor at Providence College and an expert on the gift card market, concurs: "Consumers look at a $50 gift card and think, 'I can get a $75 item, and it only costs me $25.' Recipients are getting cool things for a cheap price. And the giver thinks, 'I gave you the means to buy that thing.' The perceived value is very strong."

What to watch for

Despite the wild popularity of gift cards, consumers still need to be aware of the terms and conditions of the cards. The Federal Trade Commission oversees gift cards and requires all cards to include printed guides to their terms and conditions.

This is fine for the buyer, but it's the recipient who needs to know if and when a card expires, if there are fees for checking the balance or any other rules. So if you're giving a gift card, be sure you include the terms and conditions.

The distinction between cards with fees and expiration dates and those without them depends on the issuer. The retailers' gift cards -- known as closed-loop cards because they can be used only at that retailer -- carry no fees. Of the cards Bankrate surveyed, only Bloomingdale's and Macy's cards had expiration dates.

Cards that can be used in many places -- known as open-loop cards -- have fees and include expiration dates, after which monthly deductions are made until the balance is zero. The open-loop cards are from American Express, Discover, MasterCard, Visa and the six largest operators of shopping malls.

Targeting niches

Now that gift cards are widely accepted, the range of gift cards available is growing.

"The market has become so mature that there are niche products so that we can target our gifts to appropriate people," Horne says. "That's what leads to high rates of consumer satisfaction."

American Express' "Especially for . . ." program, for example, has cards for age groups, occasions, restaurant meals and movie tickets. Cardholders are eligible for special offers from select retailers when they use one of the cards.

Continued: Fees acceptable to consumers

 1 | 2 | next >