NEW YORK (MainStreet) While purchasing gift cards remains the most popular holiday gift, not all of them are created equal and some charge large fees to buy them.
Most Americans prefer receiving general purpose gift cards or ones with an American Express, Visa, Discover or MasterCard logo, according to a Bankrate.com report. Consumers may not realize that these cards tend to carry more fees than brand-specific gift cards or ones from retailers, restaurants, airlines and gas stations.
While 100% of general purpose gift cards charge purchase fees, only 11% of brand-specific gift cards do. In addition, 71% of general purpose cards carry a dormancy or maintenance fee, which means the recipient could incur costs if he doesn't use all of the funds after one year. None of the brand-specific cards charge a dormancy or maintenance fee.
Gift cards have been the most popular gift choice for the past five years, according to the National Retail Federation. Bankrate found that 53% of Americans prefer general purpose gift cards. Two-thirds of people who make more than $75,000 a year prefer general purpose gift cards.
"While most Americans prefer to receive general purpose gift cards because they can be used almost anywhere, they should be aware of the fees these cards charge both purchasers and recipients," said Janna Herron, credit card analyst for Bankrate.com. "For example, all of the general purpose cards that we surveyed charge the purchaser up to $6.95 and 71% charge dormancy or maintenance fees to the recipient. None of the brand-specific cards charge dormancy or maintenance fees."
Depending on the amount you purchase for the card, the fees range from $3.95 to $6.95 for each card, which can be a hefty amount for a single gift.
There are ways to avoid paying fees for some cards. Exxon Mobil does not charge a fee if you buy the gift card at a gas station but does charge buyers if they purchase it online, Herron said. Buying cards from large retailers such as the Gap allows the receiver to use it at any of their other stores such as Old Navy or Banana Republic.
"It's a very popular gift," said Herron. "Gift cards are the number one item on the list. We expect growth in gift card sales this year. These are so convenient to use."
The most common value of gift cards, both given and received is between $25 and $100, the survey revealed. People over 65 and those between 18 and 29 years old are the least likely to give a gift card. As income level increases, Americans are more likely to give and receive gift cards. In the event of loss or theft, 69% of gift card issuers will replace the card and/or funds.
Gift cards can also be sent via your cell phone or even Twitter and Facebook, Herron said.
It appears that the "buyer beware" aspect of a general purpose card lies with the purchaser, not the recipient since the fee comes out up front, said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling.
"If you don't know the person's preferences, the general purpose card remains a safe choice," she said. "The extra fee may be worth it knowing the likelihood of the card being spent is high. The brand specific cards know what they're doing by not applying a dormancy fee, as they're likely buying enough good will to offset the gain from unspent cards."
A recent MasterCard survey found that 42% of consumers prefer to give gift cards over physical gifts or experiences and 43% of consumers polled said they preferred receiving a gift card over other gifts.
One benefit of using a general purpose gift card is that most prepaid MasterCard cards offer protection from unauthorized purchases if they are lost, stolen or fraud occurs, said Sarah Ely, vice president of communications at MasterCard Worldwide. Some cards like MasterCard also include exclusive promotional offers and merchandise discounts.
Gift cards are the most requested gift this holiday season because people would rather a gift card than another useless gift, said Marc Ackerman, COO of CardCash.com, a secondary marketplace for gift cards.
"The problem is in the gift giver," he said. "Studies show people tend to give gift cards to stores and restaurants they frequent and do not take the recipient's preferences into account. Even if you receive a gift card you don't want this season, there is a safe and secure way to turn the gift card into cash."
Gift cards might also be the safest gift to give, as 23% of Americans are somewhat likely to toss or never use a gift they receive for the holidays if they don't like it, according to the Discover annual holiday shopping survey.
Some retailers such as Einstein Noah Restaurant Group and Smashburger are offering incentives to the consumer for purchasing their gift cards. Einstein Bros. Bagels and Noah's New York Bagels will give customers a free $5 gift card for every $25 gift card they purchase. At Manhattan Bagel locations, there will be a $5 discount on a $25 gift card, allowing customers to receive a $25 gift card for only $20. Smashburger will be offering $5 in Smash Cash for every $25 gift card purchased.
--Written by Ellen Chang for MainStreet