New protections add to gift cards' appeal

More than three-quarters of Americans are expected to buy a gift card this holiday season. And why not? They are convenient, and you don't have to go to the mall or worry about sizes.

But there is another incentive to buying a gift card this year: more consumer protections.

The federal Card Accountability Responsibility and Disclosure Act that overhauled credit-card practices now limits some of the worst attributes of gift cards: inactivity fees and expiration dates.

As of mid-August, gift cards must be valid for at least five years after purchase or since money was last added to the card. An inactivity fee can be assessed only after one year of nonuse. And even then, no more than one fee per month can be assessed.

In addition, some states have gift-card laws that provide extra protection.

Still, all cards are not alike.

"Gift cards are better than they used to be, but there are some pitfalls that consumers need to be aware of," said Greg Daugherty, executive editor of Consumer Reports.

So, whether you are giving or getting a gift card this season, here are some tips:

• Retail vs. general purpose: Retailer cards can be used only at a specific merchant.

General-purpose cards, usually carrying the Visa, MasterCard or American Express brand, can be used anywhere.

Stick with the retailer card, said Judd Lillestrand, founder of ScripSmart, a site that rates hundreds of gift cards.

Retailer cards typically don't have inactivity fees or expiration dates. General-purpose cards usually charge an upfront fee of $3.95 to $5.95, Lillestrand said. And a recent Bankrate.com survey found five of eight general-purpose cards assessed a monthly fee after 12 months of no activity.

One caveat: Avoid financially troubled retailers. "If you buy a gift card for a specific store and the store goes bankrupt, you don't have any protection. You're just another creditor," Daugherty said.

ScripSmart offers alerts when retailers have filed for bankruptcy so consumers can quickly use their cards.

• Spend ASAP: If you receive a card, spend it as quickly as possible, or at least within the first year, to avoid inactivity fees.

• Sell unused cards: Maybe you received a card to a restaurant that's nowhere near where you live. Rather than let it collect dust and expire, sell or trade it online.

Numerous sites, such as PlasticJungle.com, Cardpool.com and GiftCardRescue.com will buy a card from you at a discount or let you trade it in for another. Plastic Jungle, for example, offers to pay $90 for a $100 Target gift card. You can also buy cards at a discount of up to 30 percent on the sites.

Make sure you deal with a reputable site that offers a money-back guarantee, just in case the card you receive isn't what was promised.

• Give cash: Cold, hard cash has many advantages over plastic money: No fees. No expiration. No restrictions. And people are less likely to misplace cash or forget about it, Daugherty said.

Not so with gift cards. A Consumer Reports survey in mid-October found that more than one-quarter of those who received a gift card last year still hadn't used it because they didn't have the time or forgot about it.

Cash may seem more impersonal than a gift card. But Daugherty suggests going to the bank and getting crisp new bills that you can put in a card. "It will seem special," he said.