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.

Watch out for added fees: Many of the most flexible types of gift cards, often called "open loop" cards, can be used anywhere. They are essentially prepaid debit cards. However, these cards often cost a few dollars extra to purchase, and the recipient may have to pay a few bucks just to check the card's balance.

Companies such as American Express ( AXP), Visa ( V) and Discover ( DFS) offer these cards. Before paying extra for an open-loop gift card, consider whether your recipient would rather have added flexibility or extra cash tied to the card.

Watch out for expiration dates: Almost half of all consumers are wary of expiration dates on gift cards. Many retailers offer gift cards that have no deadlines. Consider those retailers when making gift-card selections this season. (Open-loop cards typically have deadlines after which a monthly service fee is charged to the card's balance.) That said, a deadline can sometimes help motivate a recipient to use the card.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.

More from Stocks

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Dow Trades Above 25,000 as U.S.-China Trade Tensions Thaw

Dow Trades Above 25,000 as U.S.-China Trade Tensions Thaw

GE's $11.1 Billion Deal With Wabtec Should Have Warren Buffett Feeling Very Sad

GE's $11.1 Billion Deal With Wabtec Should Have Warren Buffett Feeling Very Sad

How to Trade Apple Ahead of Alphabet's Launch of YouTube Music

How to Trade Apple Ahead of Alphabet's Launch of YouTube Music

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming