Gift Cards: Not Always the Easiest Holiday Present

What to know before you buy or use a gift card.

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According to Shu, the reason the subjects procrastinated is that "people feel the need to save [the certificates up] for the right moment." But the longer the period they have to act, the more likely people are to wait for that right moment—until it's too late. A shorter deadline, on the other hand, motivated more people to act. "If you know you have a short period of time, you're going to fit in as much as you can," she says. If you have a card that does not expire, Shu predicts you will probably behave much like the people in the second group of her experiment: "A long period of time just increases the chance that they won't use [the cards]."

Shu says her research has implications for both givers and recipients of gift cards. If you're planning to buy gift cards for friends and family this year, cards for more mundane places like grocery stores might make a better gift than those for special occasions like a night out at a fancy restaurant. "The more run-of-the-mill cards are most likely to be used," says Shu. If you get a card without an expiration date this year, pencil your own deadline for when you think you should use the card, suggests Shu.

Pick the right card. The majority of gift cards issued by a single store don't have expiration dates, but that's not the case with bank gift cards. Not only do bank cards typically have expiration dates, but they can also come with fees, another feature that's not typical of store gift cards. For example, issuance fees are flat fees that kick in when you activate the card. More worrisome are dormancy fees, which can be a monthly charge that applies if you leave the card inactive for a certain period of time. Store gift cards also differ because retailers and banks have different incentives for issuing them. "Retailers do it to promote brands. The bank is purely interested in economics, and banks make money off fees," says Sievers. However, banks also provide an additional service—they work at any store that accepts the brand logo on the card, typically Visa, MasterCard, or Discover. "Consumers like bank cards because they're flexible; you can use them anywhere," says Sievers.

The new Federal Reserve regulations will prohibit gift cards that carry fees for being dormant for at least one year. The regulations will also stipulate that fees must be made "clear and conspicuous" by the issuer.

Know your state laws. Many states have laws regarding escheat, the right of the state to take unclaimed property, in which the unredeemed value of an unexpired gift card goes to the state government after a certain period of time—typically between three and five years. Some states, such as Massachusetts, specifically exclude gift cards or certificates from their escheat laws, essentially making gift cards good for redemptionin those states forever. In other states, the laws are more complicated. In California, for example, most gift cards are excluded from escheat laws. But the value of cards with expiration dates returns to the state after three years if they're not used. With a few exceptions, only bank cards can have expiration dates in California.

Rules on fees and expiration dates also widely vary from state to state. Many states have regulations that apply only to retailer gift cards. Connecticut, Rhode Island, Hawaii, and Vermont are some of the states that ban fees and expiration dates for all gift cards.