Gift cards are a good way to incentivize customers to patronize an establishment — especially during the busy holiday season when hordes of people are scrambling to purchase merchandise as gifts or take advantage of bargains — but keep in mind 10 reasons to be careful about buying gift cards.
10 Reasons to Be Careful About Buying Gift Cards
As usual, restaurants have been offering sales on gift cards recently since the holiday season began prior to Thanksgiving — whether the sale is a discount on the gift card itself or through which you receive a promotional card for every certain amount of gift cards you purchase.
One good offer which has been promoted by multiple restaurants is to receive a promotional card worth $20.00 when you purchase $50.00 worth of gift cards. Depending on the fine print in terms of restrictions, that can be a great deal: a free $20.00 worth of food if you already had planned on spending at least $50.00 anyway — promotion or no promotion — at the restaurant of your choice.
However, unlike the miles that are earned with frequent travel membership programs — in which I questioned in this article as to whether or not they are a currency — gift cards use actual currency to comprise its value. You can get gift cards for just about any company at many denominations of value — such as a gift card to a restaurant worth $50.00…
…but you also have to watch out for the eight pitfalls of gift cards — because if you do not pay attention, you could get burned.
Here is a list of the nine pitfalls of gift cards into which you should be careful not to fall.
1. Limited Use of Gift Cards
Like miles and points, gift cards are limited in scope as to where you can use them. You might have $30.00 in value on that Best Buy gift card; but it will do you no good in paying for your steak dinner at a Texas Roadhouse restaurant — unless, of course, you were able to sell or trade it…
…and gift cards never offer the liquidity of cash — especially during difficult times such as the 2019 Novel Coronavirus pandemic.
On the positive side, some gift cards are good at multiple establishments because they are part of the same company. For example, if you have a gift card in your possession that is valid at Olive Garden restaurants, it is possible that it also good at Longhorn Steakhouse, as those are only two of the restaurant chains that are brands under Darden Concepts, Incorporated — so if you would rather have a meal of steak with potatoes at Longhorn Steakhouse instead of lasagne at Olive Garden, you most likely have that option available to you.
Check the fine print on your gift card to see exactly where — and when — it can be used before purchasing it.
2. Inactivity Fees and Expiration Dates
The last thing you want to do is use your gift card at an establishment — thinking you have $30.00 to spend — only to find that when the time comes to pay your bill, you only have a remaining balance of $20.00 because you did not use the card within several months of its activation…
…or worse: you have no funds at all to use because your gift card expired.
Fortunately, this announcement on Tuesday, March 23, 2010 from the Federal Reserve Board of the United States detailed final rules — meant to protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated — to restrict the fees and expiration dates which may apply to gift cards.
Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.
The final rules prohibit dormancy, inactivity, and service fees on gift cards unless:
- You have not used the certificate or gift card for at least one year
- No more than one such fee is charged per month; and
- You are given clear and conspicuous disclosures about the fees; so check the front and rear sides of the gift card to ensure what are the rules, terms and conditions of the gift card — as well as supporting documentation which you should have received with the gift card
3. You Forget About Your Gift Card — Which is What Retailers Want
Believe it or not, people forget that they have gift cards; or they simply lose them — and that is what retailers want.
Why?
It is basically free money for them — although it is considered unearned revenue liability on their balance sheets until customers redeem the gift cards. Remember, the gift card has already been paid; but the value of it still had not been used because there had not yet been an exchange of merchandise or services for the amount of money remaining on the gift card.
The gift card market worldwide was valued at $984.3 billion in 2023 — and is expected to reach $3.09 trillion by the year 2030 — with people in the United States spending approximately $300 billion per year on purchasing gift cards; and ten percent of that amount during the holiday season. That amount increased significantly from the $130 billion that was spent in 2015…
…but approximately 47 percent of adults in the United States had in their possession at least one gift card or voucher with an average value of $187.00 that had not yet been spent, which represents a potential total value of $23 billion — which is free money for the retailer or restaurant. The unused value of gift cards is known as breakage or spillage — and it amounts to tens of billions of dollars worldwide.
That is a substantial amount of cash left on the table — and you do not want to be one of those people who are out of that money.
Use your gift card as soon as possible — but if you cannot do so, at least keep all of your gift cards in a designated place where you know you will find them or encounter them during your everyday routine.
4. Beware of Fraud and Gift Card Scams
Although being the victim of fraudulent activity is somewhat more difficult with a gift card than with actual money, it still happens — especially with people who may be so desperate that they resort to fraud.
When someone I know told me of an experience at a fast food restaurant — which prompted me to relay this cautionary tale about how an employee tried to convince a customer that the value of the gift card had been depleted and offered to keep it when it still did have some cash value, as you should watch out when using a gift card — you could be scammed; and a number of readers of The Gate With Brian Cohen imparted similar experiences.
- “I used a gift card at Walmart and after using it, the cashier threw my card in the trash can saying zero balance left”, according to this comment posted by caveman. “I specifically told her to give me back my card even if it is empty. She looked at me surprisingly and said you cannot load any money on to it once it is empty. When I came home and checked the balance, there was still some 8 $ balance left on it.”
- There is also this cautionary tale imparted by Kalboz — who learned a $745.00 lesson after purchasing Hyatt gift certificates from eBay which actually had no value by the time the attempt to use them occurred. A similar situation could happen with gift cards as well as gift certificates.
Fortunately, other readers of The Gate With Brian Cohen offered some advice in order to give yourself better protection against fraud — such as Carl P, who advises you to “Know the card number (at least the last few numbers). It’s an easy sleight of hand to hand you back a different card (zero balance).”
The other problem with a gift card is — like money — if someone steals it from you, you have very few options available to you to recover it. Unlike credit cards, gift cards offer you no protection with your funds should someone abscond with it.
Many gift cards do have identification numbers on them; so if you know the identification number of a certain gift card, you can try to call the company which issued it and explain that it was stolen — but depending on the company, do not expect much to be done about it. Still, you may want to consider taking a photograph of the gift card before venturing out to use it — just in case.
Write the remaining balance on the gift card with a permanent marker is this simple but effective advice imparted by Rye, who is a reader of The Gate With Brian Cohen…
…and please refer to this article pertaining to detailed information on watching out for gift card scams.
5. The Retailer Suddenly Goes Out of Business
While a company going out of business is typically unlikely, it can — and has — happened. Unless forms of recompense have been outlined by the company or its legal team, you can lose the value of your gift card immediately where it becomes completely worthless.
Consider the case of Here To Serve Restaurants — which had been in continuous operation since 1996 but suddenly closed their ten restaurants in the Atlanta metropolitan area on Tuesday, October 6, 2015 — and left some readers of The Gate With Brian Cohen hanging.
- “I am one of the unfortunate holders of un-redeemed H2S gift cards…. several thousand dollars worth!” andrew kronitz posted in the Comments section. “I plan to file as an unsecured creditor once the corporation files bankruptcy. I’m assuming most holders won’t file same, though my attorney plans to request allocation from judge based on entire amount of un-redeemed gift card balances outstanding at time of mass closures.”
- Lisa liaw had an unused balance of several hundred dollars on her gift card as well; and she wanted to join andrew kronitz in the potential litigation to get her money back.
I had heard nothing pertaining to holders of gift cards of Here To Serve Restaurants since then; so I cannot tell you the results of the legal action which was reportedly filed against the former restaurant chain, which never reopened. In fact, Frances Leigh Catherall — who was the chief executive officer and co-founder of the company at the time it suddenly ceased operations — died back in the spring of 2019 at the age of 56.
Many people who used gift cards as vehicles to profit via a practice known as manufactured spending lost a lot of money when a company called Gift Card Rescue suddenly ceased operations back in the summer of 2016.
6. The Location Nearest You of the Retailer — Which is Still in Business — Closes Its Doors
You purchase a gift card in the hopes of using it at a location of the retailer or restaurant near you — only to find that that location has closed permanently; and the nearest location is now several counties or several states away. One example is Romano’s Macaroni Grill, which comprised of as many as 230 locations throughout the United States back in the summer of 2007. After being sold multiple times and suffering from financial woes, the restaurant chain has dwindled to its current 21 locations in ten states.
This happens more often than you may think. One telltale sign that the location may have its doors shuttered is if it is mostly devoid of customers during a busy time — such as lunch hour at a restaurant. Another example of the many signs may be poor service or unsanitary conditions. If other locations are doing well, that can be more of an indication that time is limited at best for the location in question.
Because the parent company is still in business, you may be able to request a refund for the gift card if you are unable to use it at the one location that has since been closed and you can demonstrate that another location is not convenient to where you are based. You may instead score a bonus offer; but that may be meaningless if convenience is too important to you.
7. Promotional “Coupon” Cards When You Buy Gift Cards
Christmas, Mother’s Day and Father’s Day are just three of the holidays on which retailers and restaurants hawk their incredible promotions. For example: simply purchase the aforementioned $50.00 in gift cards and you will receive a coupon worth $20.00 which you can use at a later date. Sounds like an amazing deal — right?
Not always — if you happen to take advantage of special offers on a regular basis; and if you are unable to use the gift card immediately.
First, the promotional coupon cards are usually only valid after the gift card promotion ends…
…and then, the promotional coupon cards are only valid for a certain duration of time — perhaps as short as one month; or maybe as many as three months. If you do not use this card within the valid duration, the value is gone forever and there is no way to recover it.
Also — unlike actual gift cards — restrictions apply as for what you can use the promotional coupon cards. On many of them, you cannot apply taxes, gratuities, alcoholic beverages, deliveries, take out orders, or purchase additional gift cards.
You also cannot carry a balance with the promotional coupon cards. For example, if you purchase a meal which comes to a total of seven dollars before taxes and gratuities and you have a promotional coupon card worth ten dollars, you cannot apply the taxes and gratuities — and because promotional coupon cards are usually for single use only, once you spend that seven dollars, you lose the other three dollars because promotional coupon cards do not carry any leftover balances.
Lately, companies have been imposing even more restrictions on promotional coupon cards. For example, Red Lobster is currently promoting an offer through which you receive two coupons worth ten dollars each when you purchase a minimum of $50.00 in gift cards, as they usually do from time to time — but this year, you can only redeem each coupon if you purchase an order which costs at least $40.00.
Finally — and this can be the deal breaker — the promotional coupon cards are typically not valid with any other discount offer and cannot be combined or “stacked” with other offers. For example, if the restaurant is offering a promotion where you can buy one meal and get one free, you cannot use any promotional coupon cards…
…so in that example, of which would you rather take advantage: ten dollars off; or buy one meal and get one free? With few exceptions — such as if the two meals totaled fewer than $20.00 before taxes and gratuities — the answer is obviously the buy one meal get one free deal.
Play your promotional coupon cards right and you can benefit — but count on it being something which may resemble a scam more than anything else due to a plethora of terms, conditions and restrictions.
8. The Gift Card May Not Be Used Immediately After Purchase
Some retailers or restaurants will allow you to purchase a gift card and use it immediately while you are in the establishment — but others may prevent you from using the gift card within 24 hours after purchasing it.
While this policy may likely not affect gift cards that are purchased to give as gifts for other people, it can potentially be the difference between retaining a customer who wants to use the gift card immediately after purchase and losing that customer — with no revenue from purchasing gift cards at that moment or possibly into the foreseeable future…
…or anything else, for that matter.
9. Spending Too Much Money to Purchase Gift Cards Over Too Long a Period of Time
Spending money on gift cards can potentially be a good investment if you come out ahead on the deal. In most cases, purchasing gift cards for yourself and getting no additional value from them really does not seem sensible, as you are tying up your money in something which has a limited use…
…but if you spend hundreds of dollars on gift cards to save a measly $20.00 as an exaggerated example over a long period of time, you could be losing out on other areas when you can earn more of a return on that investment.
Additionally, a concept in finance known as the time value of money purports that money which is available at the present time is worth more than its identical sum at a time in the future due to its potential earning capacity. This concept generally does not apply towards the short term of a few days, weeks or months, with which most purchases of gift cards are used — but if you happen to hold on to gift cards worth a significant amount of money over a long period of time, you may be losing on the potential value of that money even though you have technically not lost any actual money.
10. Your Gift Card Account May Be Closed at Any Time — Without Warning or Reason
Although this rarely happens, your gift card account may be closed at any time by the company which issued it — and the closure can occur with no advance notice, warning, or reason.
Worse is that if that does happen, you lose all of the funds which you have accumulated — with little recourse of ever seeing those funds again.
Consider the cautionary tale of
Amazon likely suspected fraudulent activity which was allegedly committed by Vinh and upheld its suspension after he appealed to have the account opened again and replenished with the funds he lost…
…but what if Amazon — or another company — exacted a similar approach upon someone who did not do anything wrong and gave no advance notice, warning, or reason for doing so? Worse: what if an appeal by the innocent person is denied?
Final Boarding Call
I never pay full price for a gift card — and neither should you.
For me, there has to be a value-added benefit for me to go through the trouble of purchasing a gift card. Maybe a portion of the value of the gift card will be donated to a good cause. Perhaps purchasing a gift card will save me some money. For example, you could have purchased gift cards from Delta Air Lines worth at least $250.00 back in December of 2018 and received an electronic gift card for Hotels.com worth $25.00 at no extra charge while supplies lasted — and both gift cards have no expiration date, so funds do not expire.
To save money on gift cards, ensure that you keep up with the myriad of deals offered on them on what seems to be every day. For example, many deals on gift cards are conveniently listed here at Doctor of Credit.
I have personally received gift cards as a token gesture for charitable activities such as donating platelets. In fact — in cities such as Milwaukee, Atlanta, and Chicago — the American Red Cross offered an incentive in 2016 through which if you donated blood or platelets, you received a gift card claim code worth five dollars at Amazon; and offers similar to this one reappear from time to time. Check with the American Red Cross in your local area to see if this incentive is available to you in order to mitigate the current critical blood shortage due to the 2019 Novel Coronavirus pandemic.
You could also earn free gift cards by participating in a particular promotion; and contests and sweepstakes offer gift cards as prizes which you can win — and sometimes, you do not have to look beyond BoardingArea to find them.
Gift cards also can be used as a gift — surprise, surprise — to someone who enjoys patronizing a particular establishment; but you are unsure of what exactly that person would want. Although money would accomplish the same task — in fact, the recipient could spend it anywhere he or she wants at any time — gift cards are not quite as impersonal.
In any event, ensure that you get the maximum use out of any gift cards which you possess; but realize that there are inherent risks with purchasing, using or selling gift cards — and ensure that you are completely aware of those risks to avoid any of the eight pitfalls of gift cards…
…but if you do decide to purchase gift cards to support an establishment while simultaneously taking advantage of a bargain, ensure that you use your gift card — and any promotional cards or coupons which were included with it at no extra charge — as soon as possible, as any company can go out of business at any time…
All photographs ©2016 and ©2020 by Brian Cohen.
