Using Gift Cards

If you received a gift card under the tree this Christmas, here are a few tips to help you get the most out of it. First, you should determine if it is a store branded card, or a bank issued card. A store branded card is simply a card that can only be used at that store. For example, if you win our Word Search contest and pick a Lowes Gift card, then the card is purchased at Lowes, has the Lowes name and logo on it, and can only be used at Lowes. Another name for a store branded card is a "closed-loop" card. Alternately, an "open-loop" card is a bank issued card that has a Visa, Mastercard, or bank logo on it, and can be used anywhere a credit card is accepted.

Traditionally the store branded cards have been more popular with consumers. However the more uncertain the economy becomes, the more aware we need to be about purchasing or redeeming store branded cards. Usually if a retailer goes bankrupt, their gift cards will lost most if not all of their value. For example, when the Bombay Company filed for bankruptcy, their already paid for cards were only worth 25 cents on the dollar to the holders. To avoid such a situation and gain more flexibility, many have turned to bank issued cards. However the "open-loop" cards have some things to watch out for as well such as fees and shorter expiration dates. A bank issued gift card could have an activation fee, a purchase processing fee, a dormancy fee, and a monthly maintenance fee. If you added these all up, a $25 bank issued gift card received at Christmas time could be worth as little as $5 by summer. Of course, that may be an extreme example, but it illustrates the importance of weighing the pros and cons of each type of card. We can say with some confidence that Wal-Mart is not about to go out of business, so your Wal-Mart gift card should not lose its value by the time you get there to redeem it. No matter what type of gift card you may have received this Christmas, it appears to be a good rule of thumb to use it sooner rather than later. Remember also that if you lose the card, you will have no way of redeeming it. In 2006, the value of unused gift cards was estimated to be $8 billion.