Gift Cards Ring Up Hidden Pitfalls

Gift cards are the foolproof holiday gift. They're always the right size, never the wrong color and always in stock.

That's why three-quarters of American consumers say they like receiving gift cards, according to a recent survey by Hartman Group. And while many people will be reining in spending this holiday season, the multibillion-dollar gift-card industry is still important to retailers.

Before you start stuffing stockings with some plastic holiday cheer, however, here are a few things to consider.

Give them stuff they need: Times are tough, and people are looking for ways to stretch their dollars. A gift card to a luxury store might be a special treat, but one for a restaurant or discount store might be a more practical gift. The Hartman Group survey reported that 42% of consumers bought gift cards to discount stores such as Staples(SPLS), Wal-Mart(WMT) and Costco(COST) in the past year.

Wrap it up: A third of consumers don't want to give gift cards as presents, and of those, half cite concerns about their impersonal nature. To get around the fact that a card is a rectangle piece of plastic, consider personalizing it by wrapping it in a box or by printing a personal photo on the card. A number of stores offer this type of personalization -- Wal-Mart, Best Buy(BBY) and Borders(BGP), just to name a few. At the very least, seal your gift card in a festive envelope so there is something to open.

Check the status of the store: Gift cards might be as good as cash, but if the store you bought it from declares bankruptcy, your gift may be worthless. Gift-card holders are at the end of the line of creditors, and retailers can refuse to redeem gift cards as they work through Chapter 11 bankruptcy. When the Sharper Image(SHRP) declared bankruptcy in February, it refused to accept gift cards, even those given as in-store credit on gift returns. Advice: Make sure the retailer is on solid financial footing before snapping up its gift cards. One way to do that is to search sites such as Google News and search for items about that retailer.