Don’t Give Hidden Fees This Holiday Season

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The National Retail Federation says more than four in five people will give gift cards this holiday season, and we’ll spend an average of more than $150 each. Gift cards are definitely great — they’re easy to wrap and ship, and you don’t have to worry about getting the wrong size or color — but they’re not all created equal. Make the wrong choice, and you could inadvertently give a gift that’s loaded with sneaky fees, which is about as much of a bummer for the recipient as getting a lump of coal. 

The Federal Reserve issued some new rules about gift cards in 2010. They offer some important consumer protections: gift cards can’t expire until at least five years after issuance, issuers aren’t allowed to charge fees until a year of inactivity, and they’re limited to one fee a month.

But the Fed’s protections don’t apply to promotional gift cards. These kinds of “spend X amount, get a free gift card for Y amount” are popular among retailers, but the fine print is that those gift cards are considered promotions, which means issuers can put expiration dates and assess fees on them. Expiration dates not long after the holiday season is over are pretty common. If you plan to give one of these cards as a gift, be aware that there’s often a short window of time for the recipient to use it. As per the Fed, the expiration date and any fees have to be “clearly disclosed.”

(MORE: Prepaid Debit Cards: The Lesser of Two Evils?)

Bankrate just completed a survey of 63 store and general-purpose gift cards, and it finds that retailer-specific cards are the way to go if you want to avoid fees. Only 1 of the 55 store cards surveyed carried a dormancy fee, while six of the eight bank- and credit-card-issued ones did.

The rules also don’t apply to what the Fed terms “reloadable prepaid cards that are not intended for gift-giving purposes,” which have become increasingly popular and may seem identical to gift cards. They’re not.

The card could chip away at your gift by charging the recipient a monthly maintenance fee, a fee to check their balance or even a fee to use the card. A few of these cards even have features that let you overdraw the amount on the card, which is just bad news.

Finally, although this isn’t a fee that hits the recipient, there’s another way giving a gift card can be a pricier undertaking than you expect. Most cards that can only be used at one particular chain or one company’s collection of brands don’t cost any more than the amount being given to purchase, if you buy them from the retailer or from a store that sells third-party gift cards. Watch out, though, because there are some websites out there that charge you for the privilege of buying a gift card. There are enough places to pick up a gift card that you really shouldn’t fork over an extra two or three dollars just for the piece of plastic.

(MORE: Why Retailers and Restaurants Love Giving Away Gift Cards)

Now, you can expect to have to pay — usually around five bucks on top of the gift amount — to buy general-purpose gift cards. Again, Bankrate’s survey finds that retailer-specific gift cards are almost always a better deal. All but five out of 55 store cards were free to purchase, and only one charged a dormancy fee. On the other hand, none of the eight bank- or credit-card-issued cards were free; they cost from $3 to $7 each.

If you’re thinking of buying a general-purpose gift card because it’s more convenient, decide if it’s worth digging that extra bit deeper into your wallet.

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