Did you ever receive a gift card and set it aside, then find it months or years later? Plenty of people do. Brian Riley, research director of the bankcards practice at the
Consumers forget they have the cards, or don't have time to shop, or can't find anything they want to buy. What happens to unused gift card cash? The short answer is, it depends.
Retailers issue the closed loop cards themselves, or through a third-party network, for use only at their stores. Best Buy or Target cards are common examples.
Financial institutions issue the open loop cards, which bear the logo of a major credit or debit card network like Visa or MasterCard. You can use these cards at most places the credit or debit cards are accepted.
The terms and conditions of gift cards vary widely. Some expire after a period of time, say, two years. Others charge monthly maintenance fees for unused balances after a year or so. For some, you pay a fee just to buy the card. Still others have no expiration dates or fees at all.
Many retailers—not all—have eliminated expiration dates and fees on their gift cards, indicates Anthony Giorgianni, associate finance editor of Consumer Reports Money Adviser. "The retailers make their money on product sales rather than on the cards themselves," he notes.
Financial institutions generally charge fees to buy their gift cards, and the fees can range from a nominal amount that covers processing costs to a significant sum. On the plus side, you can use a financial institution-issued card at more places than a retailer-issued card.
As you can see, it's important to carefully review the terms and conditions—and to shop around—before you buy a card. You can find most of this information on a gift card's packaging, or on the back of the card. But to make sure you have all the details, check the issuer's Web site before buying. Be sure to scrutinize the terms if you receive a card, too, so you use it before it expires and minimize fees.
When cards cover small purchases, people tend to use them right away. "The redemption rate for a McDonald's gift card is close to 100%," says Riley. "When it comes to casual dining, like Red Lobster, and even more so with fine dining, people tend to hold on to the cards and save them for a special occasion."
That's never a good idea, says Giorgianni. "A gift card isn't a savings account. If you receive one, use it."
While it's less common for a financial institution issuing gift cards to fail, it's not impossible in today's economy. Check with your credit union first when shopping for this type of gift card, rather than going to a bank you're unfamiliar with. You're likely to get a better deal at a credit union, too.
Be careful with your gift cards. Many retail gift cards are anonymous products—the issuing store doesn't know the cardholder's identity. If you lose this type of card, you're out of luck. Some organizations allow cardholders to register their cards online, and will replace lost cards for a fee. "Unfortunately the fee is often higher than the balance on the card," says Riley.
If you don't use your gift card cash, it either goes back to the card issuer or to the government in the state where the card issuer's headquarters is located. Some states require card issuers to return all or a percentage of unspent balances to the government as unclaimed assets. In other states, card issuers can keep the money.
State laws differ considerably. "Florida requires the money to go to the state, while Georgia allows the company [issuing the card] to take it," Riley says. In cases where a small, often unusable balance remains on a card, "California requires a cash refund to the cardholder for balances under $2, while other states don't, and cardholders lose those small balances."
Sometimes, when residents in a state have unused gift card balances, that state requires out-of-state card issuers to return a portion of those balances. That's impossible if a card issuer can show it doesn't know who holds the gift cards. For a look at different states' gift card requirements, see the Consumers Union Web site.
For states and card issuers, those balances are worth fighting for. Nanette Byrnes, a senior writer for Businessweek, New York, writes that in the past two years Best Buy, which issues cards from Virginia, added $135 million in unspent gift cash to its operating income.
For gift card buyers and recipients the lesson is clear: Don't let the government or a card issuer have your cash. Do your homework before buying a card and get one with favorable terms. And when you receive a gift card, spend the cash right away.
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