As you shop this holiday season you may consider purchasing gift cards. Gift cards might seem great for that hard-to-shop-for person and may seem more personal than giving cash. General pre-paid gift cards issued by companies like Visa and American express may be even more tempting since they can be used anywhere Visa or American Express are accepted, including online, but buyer beware! You may want to reconsider giving cash after reading this article. After all, it never expires!
I was recently given a $50 gift card from a family member. The card was a pre-paid non-reloadable gift card from Visa. To purchase this card, they likely had to pay a small one time fee of $1-$2 in addition to the $50 value on the card. I received the card in June, it expired in November, which I didn’t realize until I tried to use… yesterday. There is nothing I can do; The money is just gone. Too bad, so sad. I kept this card in my wallet and I thought of it as cash. It will be there when I need it. I was wrong.
I do a fair amount of online shopping and tried several times to use it on websites like Old Navy and Amazon. Unfortunately, you cannot use these cards online unless the total of your purchase is less than the amount on the card (because you usually cannot pay with a combination of cards online). I rarely spend less than $50 when I buy something online. Using the card in store can result in similar hassles and if you don’t keep an accurate tally of the money left on the card, you may have a hard time using it at all.
With general pre-paid cards there are far fewer protections when shopping online compared with bank issued debit and credit cards. With traditional debit and credit cards, the bank is required by The Credit Card Act of 2009 to refund the money if your card is stolen. If your pre-paid debit card number is stolen while shopping online, it is likely that you will never see that money again. If you want to return an item bought on a pre-paid card, there are another set of hoops to jump through. I’ve found that when purchase something on your bank issued debit or credit card and then return it, they typically issue the funds back to your card. In most cases you cannot issue money back to a prepaid debit card. The store may offer you in-store credit or not issue a refund at all.
My advice is to avoid these cards whenever possible. If you do use them, use the balance as soon as possible. Put a reminder on your phone for the week before and the day of the expiration to remind you to use your card. Many pre-paid cards charge activation, reload, random service and inactivity fees. If you choose to use these, ALWAYS read the fine print and do whatever you can to minimize fees. Many credit unions and banks offer no-fee debit and credit cards which have more consumer protection regulations and can even help you improve your credit score. If you are using pre paid cards to help you budget, save the fees and consider the cash envelope method (which you can learn more about in our previous blog post).. If you like the convenience of a debit card but are concerned with overspending, get a traditional debit card but decline over draft protection and your card will be rejected if you try to spend more money than you have. If you are set on giving gift cards, choose a retailer specific gift card which are less likely to have expiration dates due to new consumer protection laws. However, if the company goes out of business or files bankruptcy, your gift cards will be forfeited (learned that one first hand from Blockbuster)
We hope you take this into consideration before purchasing gift cards. Remember, cash doesn’t expire! And if you have questions about budgeting, credit or debit cards or any financial matters, call us or come in for a free financial counseling session.
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