The smart shopper's gift card guide

"We are focusing on ways to make the gift of the American Express gift card more personal and special, and that has led us to introduce a number of themed gift cards for specific recipients, such as kids and teens, and occasions like weddings, birthdays or simply a thank-you for doing a great job," says Robert Sherman, a spokesman for American Express. "Our special offers program provides a way for gift card givers to give more than the face amount of the gift card. The recipient can choose from a range of discounts and special offers at participating merchants -- such as a free game of bowling, a free dessert with dinner or up to 20% off the price of merchandise."

Fees acceptable

Though these open-loop gift cards cost from $2.95 to $6.95 to purchase and have expiration restrictions, they can be used like credit cards.

Consumers don't seem to be deterred by the fees to purchase these use-anywhere gift cards: The open-loop gift card business grew by 121% in 2006, to almost $3 billion, according to Mercator Advisory Group. And research suggests that growth in 2007 will continue.

"People realize that consumers vote with their wallets," Horne says. "If they view it as worth the $5 extra, then they do it. There are alternative products, but consumers are saying, 'I don't mind paying the fees because I think the value I'm getting is fair.'"

So if Auntie Em in Kansas wanted to send a gift card to her niece Dorothy in New York City, a branded gift card would be the way to go.

E-cards have drawbacks

Nearly all gift cards have shipping and handling costs, which vary with the delivery time frame. You can avoid those fees by purchasing an electronic gift card, but only 12 of the 31 retailers Bankrate surveyed offered e-cards.

If you want to go the e-card route, know that there's a drawback: In most instances, an e-card can be redeemed only online, not in stores. Exceptions are Neiman Marcus, Nordstrom, J.C. Penney and Saks Fifth Avenue; their plastic and e-cards can be used online, in stores and even for catalog sales.

State laws vary

Many states are adding gift cards to their consumer-protection laws. Rules having to do with expiration dates and maintenance fees are being amended. Several states recently passed laws that don't allow cards to expire. For example, in California, Florida, Maryland, Massachusetts and Nevada, cards cannot expire. Other states have put limits on expiration, such as prohibiting cards from expiring within the first two years of issuance.

"Clearly, there is a groundswell of support to get rid of expiration dates," Horne says. "It's an easy issue for politicians. Merchants think it's better to get customers into the store, spend more than the value of the cards and become loyal customers, so they did away with their fees and expiration dates."

But Horne says those benefits don't apply to the open-loop cards. "Their revenue streams have to come from somewhere else -- like the upfront fees."

To find out how your state treats gift cards, check with your state's consumer-protection department.

This article was reported and written by Ellen Cannon for Bankrate.com.

Published Nov. 30, 2007

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