The Real Price of Giving Gift Cards

Most gift cards issued by major credit card companies are weighed down by fees and expiration dates. Because these cards are essentially prepaid credit cards, they are subjected to many of the fine-print restrictions that plague regular credit cards. There can be a fee to buy the card, monthly service fees, fees for using the card at certain locations, a fee if the card is not used soon enough, and a fee to reissue the card if it expires. Most, if not all, have expiration dates and once expired, the money is gone.

To Fee or Not to Fee

Gift cards issued by major credit card companies do provide more versatility and convenience, but at a price. Upfront are the purchase and shipping fees. MasterCard charges $3 to $10 to purchase a gift card. Discover Card charges between $3.95 and $6.95 for processing and packaging. American Express, Wachovia's, and PNC's Visa gift cards charge $3.95 per card. Purchase fees may go up depending on the amount issued on the card or if purchased online. American Express also charges $2 to $15.95 to deliver a gift card depending on shipping time and service used.

Once you give your gift, the recipient is subject to inactivity fees and even for specific types of use (ie, ATM transactions). American Express deducts a monthly fee of $2 after 366 days and charges $5.95 to replace a lost or stolen card. To retain any of the funds after the card's expiration date, American Express charges a $10 check issuance fee. Discover Card assesses a maintenance fee of $2.50 per month after 12 months of inactivity and charges $5 to replace an expired, lost, or stolen card.

Minor Complications

When using a gift card at a restaurant, a 20% tip may be factored into the transaction before the card is approved. Therefore, be sure to calculate the tip into the amount on the gift card to ensure your card does not get denied. When returning merchandise, many retail stores require that the return be placed back on the card it was purchased with, so recipients should hold onto gift cards even after they expire. Be aware that it may take at least 3 days for the money to appear back on the gift card.

Some states have passed laws to prohibit expiration dates and fees on gift cards; however, federal law regulates banks and because these gift cards are issued by banks, state laws do not apply.

You can save yourself some hassles by buying store gift cards instead: Most retail stores do not charge fees or have expiration dates.

The Bottom Line

• Read all the fine print before purchasing a gift card.
• Make sure the recipient is aware of any possible usage fees.
• Use gift cards immediately.