Editorial Policy

Visa, MasterCard Gift Cards: Look Before You Leap

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By Eva Norlyk Smith, Ph.D.
November 4, 2009

Thinking of giving a prepaid gift card or cash to a special someone this Holiday Season? You’re not alone. Gift cards or cash make great presents. First of all, they are convenient; prepaid Visa and MasterCard gift cards can be used at any store. Secondly, you know that the receiver is going to love your present!

Seven out of ten Americans will be giving either a prepaid card or cash this season to family and friends. However, if you plan to buy a general-purpose bank gift card issued by Visa, MasterCard, or American Express, do your homework. Many prepaid gift cards come with nasty fees and other surprises, so it’s important to do a little background research before deciding which gift card to get.

Consumers are projected to spend $50 billion this holiday season on gift cards. The majority of these will be store gift cards, which don’t have fees or expiration dates. However, general-purpose Visa and MasterCard gift cards are becoming increasingly popular, with sales projected to be nearly $4 billion this year. Most of these gift cards cost $4 to $7 to purchase, and some begin to charge monthly fees six or twelve months after they are issued. With fees running as high as $4.95 a month, that great Holiday present could quickly evaporate if the gift card is left too long in the recipient’s wallet. An estimated 10 percent of the value of gift cards is never used, and value is further lost through monthly fees.

According to a newly released report from the Consumer Federation of America, one reason that so much value is lost through gift cards is that Americans are not familiar with the terms of prepaid gift cards. In a recent survey of 1004 adults, only 33 percent knew that there would be a fee to buy the card. And only about one out of two of the people surveyed (54 percent) knew that they could end up paying a monthly fee if they did use up the gift card within six to twelve months.

In short, if you are planning to give a cash gift card this year, read up on the terms before deciding which card to buy. Since you don’t know how quickly the recipient will use the card, stay away from gift cards that charge monthly fees after an introductory period. While many Visa and MasterCard gift cards come with fees and an expiration date, American Express gift cards do not. Even if you go beyond the “valid thru” date listed on the front of the American Express gift card, the card is still valid, and you can call Amex to get a free replacement card.

If you are the happy recipient of a prepaid gift card, here are four tips to make sure you got the most out of your present:

  • Pay Attention to the Expiration Date and Charges. Educate yourself on the terms, particularly noticing if the card will accrue monthly fees after an introductory period, and if it has an expiration date.
  • Check for Split Payments. Not all stores allow you to split the amount of purchase between a gift card and another payment method, such as cash or another credit card. Most larger chains do. Check with the cashier up front and tell him or her that you will be using a gift card to pay for part of the purchase.
  • Spend the Entire Balance within 6 Months. If you can, use up the entire value of the card within the first six months. This will make you more likely to use its full value and avoid monthly fees.
  • Guard your card like cash. Gift cards are like cash, and can easily be used by someone else should it be lost or stolen. To protect yourself, write down the card number, along with the customer service number and keep these in a safe place. You need the card number to check your balance or replace the card if it is lost or stolen.

While it’s important to remain alert for this Holiday shopping season, starting next year the terms of bank issued gift cards will improve. Under the consumer protections passed as part of the new Credit CARD Act, effective in August 2010, gift cards issued must be valid for at least 5 years, and no fees can be charged if the gift card is used at any time within the past 12 months.

CFA and the National Association of Consumer Agency Administrators (NACAA), have issued a new consumer brochure on gift cards for use this season. The two agencies plan to distribute the brochure through their local agencies; in addition, American Express will distribute1.5 million copies to major retailers, including CVS and Walgreens. You can download a copy of the brochure on CFA’s website, www.consumerfed.org.