Gift Cards 101

How to Optimize Their Use and Reduce Unspent Rewards

Gift Cards 101
August 12, 2014

Most major retailers today offer gift cards, and with good reason. According to statistics compiled by Gift Card Granny, over 60% of gift card recipients go over the spending limit of their gift card, and of that group, three-quarters of them spend more than 60% over the value of the card. In an even better sign for retailers, between 2005 and 2011, over $41 billion in gift card value went unclaimed. For a retailer, that’s free money.

If you are like most people, you probably both give and receive gift cards, and you probably have at least one gift card with remaining value in your junk drawer. How do you make the most of your gift cards and avoid contributing to the billions of lost redemption opportunities (known in the card industry as breakage)?

Like most things in life, it is a matter of diligence, planning, and paying attention to details. The first detail is understanding what kind of card you have, and the limitations that are associated with it.

There are two basic types of gift cards – the closed-loop card that is used at one specific retailer or retailers owned by the same company, or open-loop cards issued by traditional card companies like Visa and American Express that are accepted by many vendors.

Open-ended cards tend to have fees associated with them for both parties – the buyer when the card is issued, and inactivity or maintenance fees for the redeemer if it is not used properly. The advantage of these cards is the flexibility – they can be used almost anywhere and may even be redeemable for cash. Retailer cards are more limited in where they can be used and are for merchandise only, but typically carry no fee. (In California, most gift cards cannot have any expiration dates or service fees.)

After checking out and understanding all the restrictions, consider these tips for efficient use of your gift cards:

  • Use Them Promptly – There are two good reasons you want to use a gift card relatively promptly: it may have inactivity fees that deduct a portion of the card value over time, and using it quickly makes it less likely you will stick it in a drawer and forget about it.

  • Wait For Sale Items – You do want to use the cards relatively soon, but not if you have to pay inflated prices. Generally, with scouting and patience, you can find merchandise you want to redeem with your card at sale prices before any fees take effect.

  • Swap/Sell Unwanted Cards – Sometimes you get a gift card to a store that simply does not carry things that you are interested in buying. Several online sites specialize in buying unused gift cards or allowing you to swap your unwanted gift card for one that you can use.

  • Watch Purchase Amounts – You probably won't be able to spend the exact amount of your card, but try to stay within a few dollars either over or under the limit. Plan your purchase to stay as close to the amount as possible. Do not give in to the urge to overspend. Retailers are counting on your lack of discipline.

  • Understand Restrictions – Read the card back and any attachments to watch for fees, expiration dates, and other limitations. For example, can the card only be used in-store (not online), or are sale items excluded?

Just because the majority of Americans overspend on their gift cards doesn’t mean you have to join them. It’s free money to you, but treat it the same as all the rest of your hard-earned money, and make the most of what you purchase with it. If you do need more credit to complete your purchase, check out MoneyTips' list of credit card offers.

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