Dos & Don'ts of Buying Gift Cards

Americans are expected to spend about $25 billion on gift cards this holiday season, according to a report by Archstone Consulting. It's no surprise that the cards are so popular: They are one-size-fits-all and can be purchased everywhere from drugstores to the Internet.

But buyer beware: Those who don't pay attention to the fine print could end up giving their friends and family—or themselves—an unwanted surprise.

"Bank-issued gift cards often have a purchase fee or activation fee," says Anthony Giorgianni, editor of Consumer Reports, which reviews consumer products and services. "Some cards expire. And some cards have dormancy fees or maintenance fees, which zap the value of the card over time."

A new federal law prohibits fees unless the card has been inactive for a year, and bans expiration dates sooner than five years. Although that law doesn't go into effect until February, some retailers and banks already have adopted the more consumer-friendly policies.

Retailer-issued gift cards have fewer fees than bank-issued cards. However, "If that merchant goes out of business, you are probably stuck," Giorgianni says. "That happened with the Sharper Image."

Some online retailers won't allow you to pay for a purchase with both a gift card and a credit card, making it difficult to use up a gift card's balance.

In general, when purchasing gift cards:

• Do read all of the card's terms and conditions.
• Don't buy from online auction sites, because the cards may be counterfeit.
• Do make the recipient aware of the card's expiration date and fees.
• Don't purchase a gift card from a retailer that has filed for bankruptcy, unless the business plans to honor its gift cards.
• Do give the recipient the original purchase receipt, which makes it possible to verify the card's purchase if it is lost or stolen.
• Don't purchase a card if its protective sticker has been removed or if the PIN number on the back is visible.
• Do check a retailer's website for its gift card policy first; many don't have this information at the store.

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