Day Nine: Getting the Most of Your Gift Card

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Despite the growing popularity of gift cards, consumers still need to be aware of the terms and conditions of the cards, so read the fine print.

The Federal Trade Commission oversees gift cards and requires all gift cards to include a printed guide to terms and conditions with the card.

This is fine for the buyer, but what about the recipient?

If you're giving a gift card, be sure you include the terms and conditions. Your loved ones need to know if and when the card expires, and whether there are fees for checking the balance or any other rules.

The distinction between cards with fees and expiration, and those without them, depends on the issuer. Gift cards issued by retailers are known as "closed-loop" cards because they can be used only at that retailer. These carry no fees.

Cards that can be used in many places are known as "open-loop" cards. Each card has fees and is valid until an expiration date. After that, monthly deductions are made until the balance is zero. Open-loop cards are issued by American Express, Discover, MasterCard and Visa, and the six largest shopping mall operators.

Now that gift cards are widely accepted, the range of gift cards available, and the niches they target, is growing.

For example, American Express's "Especially for ..." program has cards for age groups, occasions and hobbies such as dining and movie-going. Cardholders are eligible for various special offers from select retailers when they use an Especially for ... gift card.

Open-loop gift cards cost anywhere from $2.95 to $6.95 to purchase, have expiration restrictions, and can be used anywhere those credit cards are accepted. They are the way to go if you want to send a gift across country and aren’t sure about what retailers are located in that area.

Nearly all gifts cards have shipping and handling fees, which vary by delivery time frame. To avoid those fees purchase an electronic gift card.

But not all retailers offer e-cards. There is another drawback: In most cases, e-cards can be redeemed only online, not in stores. Some exceptions are Neiman Marcus, Nordstrom, J.C. Penney and Saks Fifth Avenue; both their plastic and e-cards can be used online, in stores and for catalog sales.

Many states are adding gift cards to their consumer protection laws. Check with your state's consumer protection department to find out how your state treats gift cards and checks.

Many states are amending rules governing expiration dates and maintenance fees.

Several states, such as California, Florida, Maryland, Massachusetts and Nevada, have passed laws that don't allow cards to expire. Other states have put limits on expiration, such as not allowing cards to expire within the first two years of issuance.

Merchants have gone along with the changes in fees and expiration dates because they think it's better to get customers into the store, spend more than the value of the cards and become loyal customers.

But those benefits don't apply to open-loop cards because issuers like the revenue streams they get from sources such as upfront fees.