1 Billion a year in gift cards go un-redeemed

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Gift cards are not exactly the most imaginative gift in the world, but they are easy to give and even easier re-gift. Yet despite their convenience, a surprising number of them go to waste.

Sales of gift cards have risen from $80 billion in 2007 to a forecasted $118 billion this year, a 47% increase in five years, according to a new report by advisory company CEB TowerGroup. But more than $1 billion on gift cards still goes unredeemed annually, says Brian Riley, research direct with CEB TowerGroup, despite significant improvements in the law governing the use of these cards. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 ruled that they should not expire until five years after they are issued, or after the date they are loaded with money. To be sure, those rules have certainly given new life to gift cards left at the bottom of the sock drawer: In 2007, 10% of gift card sales were estimated to have gone unredeemed versus 1% this year, Riley says.
But why do $1 billion in gift cards still going unredeemed? One problem is that five-year timeline. Indeed, only 50% of small businesses last five years, according to the Bureau of Labor Statistics. When a business does go under, he says, the consumer and his or her $100 gift card may have to get in line behind a creditor who’s owed $100 million. The five-year minimum expiration date can also encourage people to delay using them, increasing the likelihood that the cards will get lost, says Elliot Bohm, CEO of CardCash.com, a company that buys gift cards at a discount from consumers and re-sells them. That’s why, Riley says, “even if the gift card doesn’t have an expiration date, it’s better to use it sooner rather than later.”
The biggest mistake is to buy gift cards at face value, experts say. “Look for special gift card promotions,” says consumer advocate Edgar Dworsky. The “Ninety Nine” restaurant and pub chain will give a $5 bonus card with a $25 gift card. Similarly, Applebees restaurant chain currently offers a $10 digital bonus when people purchase $50 in digital gift cards. And as part of its Black Friday offers—on Thursday, Friday and Saturday this week—Rite Aid is giving a merchandise credit to those who buy a $50 gift card for Home Depot /quotes/zigman/229488/delayed/quotes/nls/hd HD +0.34% , Gap /quotes/zigman/227242/delayed/quotes/nls/gps GPS -0.92% , Old Navy or Banana Republic. For those wishing to trade in their gift cards for cash, sites like CardCash.com buy cards at around 80% to 85% of their value and will re-sell them at around 8% to 90% of their value.
Word of caution: Some gift cards are not really gift cards. Although the Wal-Mart’s /quotes/zigman/245476/delayed/quotes/nls/wmt WMT +0.21% reloadable gift card doesn’t carry a service fee, it’s actually a prepaid card that encourages the holder to re-load it with money and keep spending, says Odysseas Papadimitriou, CEO of the credit card and gift card website CardHub.com. (A spokesman for Wal-Mart says they’re useful for gifts—from a parent to a child who’s away at college, for example.) It’s also worth checking what kind of gift card you receive, he says. For instance, a gift card obtained through a rewards/loyalty program is not subject to the same protections as store-bought gift cards and will likely have an earlier expiration date. A gift card obtained through purchase, on the other hand, is subject to the minimum five-year expiration date under the 2010 Card Act, Papadimitriou says.

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Be a smart Black Friday shopper

Steve Schaffer, CEO of Offers.com, has tips for surviving Black Friday, including staying home and enjoying time with the family. Photo: Getty Images.

Their drawbacks aside, gift cards are likely to be the most popular gift this year, studies suggest. Indeed, nearly one-third of Americans are asking for these pieces of plastic this year, while 27% want electronics and appliances, and only 9% of people want books, music and movies, according to a survey from Discover Financial Services. And 36% of consumers say gift cards are the thing they are most likely to buy this year. Helped by the popularity of digital gifts—like Starbucks coffee tokens advertised on Facebook—holiday shoppers will spend around $163 on gift cards, a record high, according to the National Retail Federation.
It’s not always appropriate to give a gift card as a present, experts say. Immediate family members and baby boomers in particular are less likely to appreciate them, says Pamela Eyring, the president of the Protocol School of Washington, a training school that focuses on cross-cultural and business etiquette. “It’s regarded as a thoughtless,” she says. “You don’t even have to wrap it.” Still, for a friend who has enough stuff, a gift card for an experience—like a spa treatment, yoga class, cooking or acting class—is ideal, says Patricia Napier-Fitzpatrick, founder and director of The Etiquette School of New York. Just be sure to deliver it with a handwritten note, she says.
And whether or not you like the idea of gift cards, etiquette experts say, receive them graciously. “Make sure to tell the giver what you bought with the card,” Eyring says.

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