Kids & Money: Gift cards are appealing, but watch for the traps

Your children might discover the hard way this holiday season that some gift cards can be a raw deal.

Gift cards consistently are near the top of consumer holiday shopping complaints largely because of costs and fees buried in the fine print. Also, expiration dates can punish you if you don’t use the cards quickly.

While many retailers have abandoned these practices, some cards still retain hidden traps. New rules proposed earlier this month by the Federal Reserve promise to protect consumers from unexpected costs or restrictions, but the provisions won’t take effect until August 2010.

Until then, don’t assume that all gift cards are created equally.

Most of the $50 billion to $90 billion that consumers are expected to shell out this year for gift cards will be spent around the holidays. And no doubt about it, many youngsters will be on the buying and receiving end.

All the more reason for them to know what they’re getting.

“Even though gift cards take the hassle out of holiday shopping, you want to use them wisely,” said Bill Hardekopf, chief executive of the LowCards.com Web site.

There are two types of gift cards: General purpose and store cards.

General purpose cards, from Visa, MasterCard and American Express among others, can be used any place these credit cards are accepted. But there are drawbacks.

Be aware of up-front fees of up to $7 when purchasing a general purpose card, according to a recent Consumer Federation survey. The companies also typically charge fees up to $4.95 a month if the card isn’t used after a year, effectively wiping out some or all of the value on the card.

Store cards, on the other hand, are limited to that retailer (think Best Buy, Wal-Mart, Dick’s Sporting Goods) or its affiliated stores. Many store cards also can be used online and most don’t come with fees or expiration dates. In many cases, you can pay for part of a purchase with a store card and the rest with cash or some other method.

The best advice for youngsters who receive gift cards: Use them as soon as possible. The longer they sit in your wallet or purse, the less likely you’ll remember to cash them in.

If there’s gift card your son or daughter doesn’t like or need, don’t stuff it in the sock drawer and forget about it. Consider online gift-card exchanges, which allow you to swap it for a different one or to get cash for the card.

GiftCardRescue.com, for example, typically buys gift cards for 60 percent to 80 percent of their value, depending on demand. Sellers also can exchange their unwanted card for an Amazon.com gift card, and the redemption value will be bumped up by five percent.

The company restricts its exchange program to cards with balances of $20 to $500, since these tend to have the best resale value.

Another option: Donate the card to GiftCardGiver.com, an Atlanta-based company that pledges to distribute the cards to non-profit agencies to help the needy.

And if your young consumer still has an unused gift card from the last holiday season? Suggest he tap into it to purchase a gift for someone else.

Buying gift cards
Buy a card only from a merchant you trust.

Make sure the store is in a good financial position.

Ask about the fees and expiration dates of the card.

Read the card’s fine print.

Using gift cards
Use as soon as possible.

Look for an expiration date or any use fees.

Keep the card, even after the balance is depleted, until you are sure you won’t be returning any of the items that you purchased with it. Some retailers may require the card with the return.

If the gift card is from credit card companies, write down the card number. If it is lost or stolen, the card can be cancelled and a replacement issued, though it may cost a few dollars. Most store cards, however, can’t be replaced if they are lost or stolen.

If there’s a problem, contact the Federal Trade Commission, 877-382-4357.

Source: LowCards.com

Send questions and comments to srosen@kcstar.com, or call 816-234-4879.