Read the fine print
Despite the wild popularity of gift cards, consumers still need to be aware of the terms and conditions of the cards. 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 it's the recipient who needs to know if and when the card expires, if there are fees for checking the balance or any other rules. So if you're giving a gift card, be sure you include the terms and conditions.
The distinction between cards with fees and expiration and those without them depends on the issuer. The retailers' gift cards -- known as "closed-loop" cards because they can be used only at that retailer -- carry no fees. Of the cards we surveyed, only Bloomingdale's and Macy's cards have expiration dates.
Cards that can be used in many places -- known as "open-loop" cards -- have fees per card and are valid until an expiration date, after which monthly deductions are made until the balance is zero. The open-loop cards are from American Express, Discover, MasterCard and Visa and the six largest operators of shopping malls.
Now that gift cards are widely accepted, the range of gift cards available is growing.
"The market has become so mature that there are niche products so that we can target our gifts to appropriate people," says Horne. "That's what leads to high rates of consumer satisfaction."
American Express's "Especially
for ..." program, for example, has cards for
age groups, occasions and hobbies like dining
and movie-going. Cardholders are eligible for
various special offers from select retailers when
they use an Especially for ... gift card.
"We are focusing on ways to make the gift of the American Express Gift Card more personal and special, and that has led us to introduce a number of themed gift cards for specific recipients -- such as kids and teens -- and occasions -- like wedding, birthdays or simply a 'thank you' for doing a great job," says Robert Sherman, a spokesman for American Express. "Our special offers program provides a way for gift card givers to give more than the face amount of the gift card. The recipient can choose from a range of discounts and special offers at participating merchants -- such as a free game of bowling, a free dessert with dinner or up to 20 percent off the price of merchandise."
While these open-loop gift cards cost from $2.95 to $6.95 to purchase and have expiration restrictions, they can be used anywhere those credit cards are accepted. Consumers don't seem to be deterred by the fee to purchase these use-anywhere gift cards: The open-loop gift card business grew by 121 percent in 2006, to almost $3 billion, according to Mercator Advisory Group. And research suggests that growth in 2007 will continue.
"People realize that consumers vote
with their wallets," says Horne. "If they view
it as worth the $5 extra, then they do it. There
are alternative products, but consumers are saying,
'I don't mind paying the fees because I think
the value I'm getting is fair.'"
So if Auntie Em in Kansas wanted to send a gift card to her niece Dorothy in New York City, a branded gift card would be the way to go.