There are two types of gift cards, so let’s consider them one at a time:
Gift cards issued by retail stores:
I can only think of a couple reasons I would buy a gift card for a particular store.
- There’s a discount or bonus that comes with a gift card purchase. Like: buy a $100 gift card and get a $10 gift card as a bonus. Or: buy a $100 gift card and get a coupon for 50% off any purchase.
- It’s necessary to make sure that the recipient uses the money as intended. Like: buy a Subway gift card for a college student so that the gift can be used only for food and not for beer or marijuana.
Other than that, what’s the point of gift cards? Are the recipients of your gift cards better off because they are restricted to shopping at only one store? It’s hard to see how that would be true. Cash is good everywhere. Store-issued gift cards aren’t.
Also, store-issued gift cards sometimes have non-use fees that will slowly reduce the value of a card that isn’t used after a certain number of months. And, if the company goes out of business, then its gift cards could become worthless (.e.g., Borders, Circuit City).
And, stores will sometimes be tricky when you use a gift card. I once received a Target gift card that was worth $30. I used it for a purchase that was a bit more than its value, let’s say, $30 and 25¢. I gave the clerk a one-dollar bill and the card, expecting to use up all the value on the card and get back 75¢ in coins as change. But the clerk applied the $1 bill to the balance first, and then gave me back the gift card with a new value of 75¢. I don’t know if the clerk was just careless or if perhaps she was doing something Target wanted her to do — leave me with a gift card with an insignificant balance, hoping I would lose or misplace it thus allowing the store to keep the 75¢. (I made her re-do the transaction so that the card value ended at zero and I got the six bits.)
Gift cards issued by banks and credit-card companies:
Gift cards that look like credit cards have the advantage that they can be spent anywhere credit cards are accepted. But watch out for fees: activation fees, dormancy fees, non-use fees, service fees … these can add up to a large amount of money relative to the value of the gift. Read the fine print. Some credit-card gift cards look like they’re “no fee” at a glance, but are really loaded with fees. Would you really pay $4 so you can give someone $25? Does that make sense? Wouldn’t your recipient be better off is you just gave them $29 in cash? And if the recipient doesn’t use the gift card quickly, its value will probably decrease each month. So, you paid $4 to give a $25 gift card, but the recipient didn’t use it soon enough and really only got $21. Wow.
The thing to do: Get some currency gift envelopes. The credit union where I keep a checking and savings accounts gives these envelopes away free. Avoid the fees, give more gift. A gift of cash can be used for anything — it can even be saved or invested where it will earn interest or dividends. Can’t do that with a gift card.
A few other things about gift cards: Does this country really need more plastic garbage in our landfills? Do we really need to see more advertising? And, btw, you might be able to save money by buying gift cards that someone else doesn’t want on eBay or similar.