Consumer Reports Doesn’t Recommend Gift Cards — Here’s Why

Photo (cc) by 401(K) 2013

If you’re planning on giving a loved one money this holiday season, go with paper, not plastic.

That’s the recommendation of Consumer Reports, which said that cash and checks are best if you’re considering a monetary gift. CR said gift cards are like cash, but with lots of strings attached.

According to the National Retail Federation, gift cards are the go-to gift this holiday season. In fact, total spending on gift cards is expected to reach $31.74 billion. The average person who buys gift cards will spend about $173 on gift cards, which is a $10 increase from last year.

People aren’t just buying gift cards because they don’t know what else to get. Gift recipients are requesting them. Gift cards have been the most requested gift item since 2006, the NRF said. Total spending on gift cards has skyrocketed by 83 percent since NRF started tracking the information in 2003.

Despite new federal regulations that make gift cards better for consumers, such as not allowing gift cards to expire within five years of the purchase date, CR said these are the main disadvantages of gift cards:

  • Purchase fees. The issuers of the gift cards can charge you a fee to purchase it. An American Express Original Gold gift card has a fee of $3.95, CR said. If you want a First Bank MasterCard Gift Card, be prepared to pony up $4.95.
  • Dormancy fees. Don’t save your gift card for a rainy day, unless the rainy day is within 12 months of the last activity on the card. Thirteen months after you last used the card or added more money to it, card issuers can start charging “dormancy fees” for inactivity. So use it or lose it (at least some of it).
  • Replacement issues. Replacement of lost or stolen cards isn’t required by law, and replacement is usually impossible or comes with a steep price.
  • Lack of protections. You have no right to dispute purchases made on the gift card, regardless of whether there’s fraud. If a company goes bankrupt, you may be out of luck, holding worthless plastic, CR noted.
  • Acceptance issues. Although bank-issued gift cards are widely accepted, retailer cards are not, except at the issuing retailer.

If you still want to purchase gift cards for presents, you may want to heed these words of advice from CR:

If you must give a gift card, check the terms and conditions so you don’t saddle your gift recipient with something onerous, such as a card that can’t be replaced if lost or stolen. And include the receipt, which often is needed to replace cards that have been lost, stolen, or destroyed, when replacement is even an option.

Are you a fan of gift cards? Share your thoughts below or on our Facebook page.

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