All Things Financial Planning Blog

With less than 48 hours until Christmas, I sure hope you’ve done the lion’ share of your shopping.  As you lay your head down this evening and begin to think, “Who am I missing?” Perhaps a Gift Card might be the solution you need.  

Let’s think … Did you get a gift for the mailman, the trashmen, the kid’s school bus driver, the dance teacher, the doorman, the handyman, the cleaning service, the plow guy, the landscaper, your friendly coffee server at Dunkin Donuts, the person who pumps your gas, and so on, and so on.

It’s no wonder gift cards are a $6 billion industry. 

Gift Cards have become the easiest and most requested gift item according to NRF’s Consumer Intentions and Actions Survey.  In fact, more than 54 percent of people surveyed said their number one preference for a gift is a GIFT CARD. 

But before you buy them, there some facts you should know.  Gift cards are issued in two forms, “Closed Loop” and “Open Loop.”

Closed Loop cards are generally issued by a retail outlet and can only be used at that particular location or one of the store’s chains. For instance, if you bought a $25 Gift Card to TGI Fridays the recipient could generally use the card at TGI Fridays anywhere in the country.  These cards are usually issued without any fees, and some stores even offer incentives and discounts when you purchase them.  The reason that they are called “Closed Loop” is that there is a limited number of places that the card can be redeemed.

Open Loop Cards are generally issued by banks, and other financial institutions like VISA, Mastercard, and American Express. While these cards allow the recipient to use the card as cash at any of the locations where these names are accepted, the buyer generally needs to pay a fee, per card. Those fees can range from $1 to $5. In addition, many of these cards can have expiration dates andor monthly fees that get deducted from the card. 

A few words of advice as you make those last minute, hasty buys.

1.  Select Credible Retailers – In 2008/2009 many well-known retail establishments closed their doors right after Christmas; leaving gift card holders with a rectangular piece of plastic with a value of zero. 
2. Check for Gift Card Tampering – Many gift cards can be registered so that purchases can be made online. Simply scratch the removable decal on the back of your card, and you’ll find your secret code. But beware, some cards are being scratched in retail establishments and thieves are writing down the numbers and registering them before you purchase the card at the counter. How would you like to pay $50 for a Borders Books Gift Card only to find that when the recipient redeemed it, he/she learned that the card was invalid?
3. Recognize the Premium Cost for Buying Open Loop Cards – If the cost for a Visa Gift Card is $3 per card and you want to buy a $30 Gift Card; that translates to a 10 percent fee.  
4. Consider Big Box Vendors for Gift Cards less than $100 – It is likely that recipients will welcome gift cards from stores like Target, Walmart, Home Depot and Costco. These cards do not have any upfront fee, and the recipient has a wide array of options when spending their card. 

Marc Freedman, CFP®
President/CEO
Freedman Financial
Peabody, MA