7 Pitfalls of Gift Cards Which Can Cost You Serious Money

The holiday season once again approaches in 2019 — and that is one of the most popular times of the year when gift cards become popular. Promotional offers for gift cards can potentially save you money — either with discounts or extra value added to them for a limited time — and they can be great gifts for someone else when you otherwise simply do not know what to give that special person.

7 Pitfalls of Gift Cards Which Can Cost You Serious Money

Unlike frequent travel loyalty program miles and points — in which I questioned in this article as to whether or not they are a currency — gift cards use actual currency to comprise its value. You can get gift cards for just about any company at many denominations of value — such as a gift card to a restaurant worth $25.00…

…but you also have to watch out for the seven pitfalls of gift cards — because if you do not pay attention, you could get burned.

Here is a list of the seven pitfalls of gift cards into which you should be careful not to fall.

1. Limited Use of Gift Cards

Like miles and points, gift cards are limited in scope as to where you can use them. You might have $30.00 in value on that Bed, Bath and Beyond gift card; but it will do you no good in paying for your shrimp scampi dinner at Red Lobster — unless, of course, you were able to sell or trade it.

On the positive side, some gift cards are good at multiple establishments because they are part of the same company. For example, if you have a gift card good at Chili’s restaurants in your possession, it is most likely also good at Maggiano’s Little Italy, as those two restaurant chains are brands under Brinker International — so if you would rather have a meal of Chicken Parmesan with pasta at Maggiano’s instead of a hamburger with French fries at Chili’s, you have that option.

Check the fine print on your gift card to see exactly where it can be used.

2. Inactivity Fees and Expiration Dates

Staples rewards card

Note all of the information clearly defined as printed or embossed on the front and back of this rewards card. If only all gift cards could be this clear… Photograph ©2016 by Brian Cohen.

The last thing you want to do is use your gift card at an establishment — thinking you have $30.00 to spend — only to find that when the time comes to pay your bill, you only have a remaining balance of $20.00 because you did not use the card within several months of its activation…

…or worse: have no funds at all because your gift card expired.

Fortunately, this announcement on Tuesday, March 23, 2010 from the Federal Reserve Board of the United States detailed final rules — meant to protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated — to restrict the fees and expiration dates which may apply to gift cards.

Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.

The final rules prohibit dormancy, inactivity, and service fees on gift cards unless:

  1. You have not used the certificate or gift card for at least one year
  2. No more than one such fee is charged per month; and
  3. You are given clear and conspicuous disclosures about the fees; so check the front and rear sides of the gift card to ensure what are the rules, terms and conditions of the gift card — as well as supporting documentation which you should have received with the gift card

3. You Forget About Your Gift Card — Which is What Retailers Want

Believe it or not, people forget that they have gift cards; or they simply lose them — and that is what retailers want.


It is basically free money for them — although it is considered unearned revenue liability on their balance sheets until customers redeem the gift cards. Remember, the gift card has already been paid; but the value of it still had not been used because there had not yet been an exchange of merchandise or services for the amount of money remaining on the gift card.

In 2015, $130 billion was spent on gift cards, according to this article written by Robert Teitelman and Lawrence C. Strauss for Barrons — and approximately $1 billion of those gift cards were unused last year. “This unused card value, known as breakage or spillage, is down from $6.9 billion in 2008, the year before a federal law cracked down on cards that had short expiration periods or charged monthly fees on a card’s balance. There has been greater than $21 billion in cumulative breakage since the start of 2008, though breakage fell sharply in 2009 and 2010 after the new regulations” — referring to the aforementioned announcement from the Federal Reserve Board of the United States.

That is a substantial amount of cash left on the table — and you do not want to be one of those people who are out of that money.

Use your gift card as soon as possible — but if you cannot do so, at least keep all of your gift cards in a designated place where you know you will find them or encounter them during your everyday routine.

4. Beware of Fraud

Although being the victim of fraudulent activity is somewhat more difficult with a gift card than with actual money, it still happens.

When someone I know told me of an experience at a fast food restaurant — which prompted me to relay this cautionary tale about how an employee tried to convince a customer that the value of the gift card had been depleted and offered to keep it when it still did have some cash value, as you should watch out when using a gift card — you could be scammed; and a number of readers of The Gate imparted similar experiences.

“I used a gift card at Walmart and after using it, the cashier threw my card in the trash can saying zero balance left”, according to this comment posted by caveman, who is a reader of The Gate. “I specifically told her to give me back my card even if it is empty. She looked at me surprisingly and said you cannot load any money on to it once it is empty. When I came home and checked the balance, there was still some 8 $ balance left on it.”

There is also this cautionary tale imparted by Kalboz — who is another reader of The Gate — who learned a $745.00 lesson after purchasing Hyatt gift certificates from eBay which actually had no value by the time the attempt to use them occurred. A similar situation could happen with gift cards as well as gift certificates.

Fortunately, other readers of The Gate offered some advice in order to give yourself better protection against fraud — such as Carl P, who advises you to “Know the card number (at least the last few numbers). It’s an easy sleight of hand to hand you back a different card (zero balance).”

The other problem with a gift card is — like money — if someone steals it from you, there is little you can do about it. Unlike credit cards, gift cards offer you no protection with your funds should someone abscond with it.

Many gift cards do have identification numbers on them; so if you know the identification number of a certain gift card, you can try to call the company which issued it and explain that it was stolen — but depending on the company, do not expect much to be done about it. Still, you may want to consider taking a photograph of the gift card before venturing out to use it — just in case.

Write the remaining balance on the gift card with a permanent marker is this simple but effective advice imparted by Rye.

5. The Retailer Suddenly Goes Out of Business

While a company going out of business is typically unlikely, it can — and has — happened. Unless forms of recompense have been outlined by the company or its legal team, you can lose the value of your gift card immediately where it becomes completely worthless.

Consider the case of Here To Serve Restaurants — which had been in continuous operation since 1996 but suddenly closed their ten restaurants in the Atlanta metropolitan area on Tuesday, October 6, 2015.

“I am one of the unfortunate holders of un-redeemed H2S gift cards…. several thousand dollars worth!” andrew kronitz — who is a reader of The Gateposted in the Comments section. “I plan to file as an unsecured creditor once the corporation files bankruptcy. I’m assuming most holders won’t file same, though my attorney plans to request allocation from judge based on entire amount of un-redeemed gift card balances outstanding at time of mass closures.”

Lisa liaw had an unused balance of several hundred dollars on her gift card as well; and she wanted to join andrew kronitz in the potential litigation to get her money back.

I have heard nothing pertaining to holders of gift cards of Here To Serve Restaurants since then; so I cannot tell you whether or not legal action was filed against the former restaurant chain, which will not reopen.

Many people who used gift cards as vehicles to profit via a practice known as manufactured spending lost a lot of money when a company called Gift Card Rescue suddenly went out of business, as originally reported in this article written by Kathy Kass of Will Run For Miles

…and Kathy Kass is an attorney who offers this advice: “I am in the process of locating the legal papers and order referred to in the above order. In the meantime, if you are awaiting payment from Gift Card Rescue, you may well be out of luck — you should nevertheless act promptly. First, check for balances on any cards you may have sent in. And, second, try contacting the company itself, and if needed, the appropriate agency or an attorney.”

Read the comments of her article — as well as the comments of this article written by Shawn Coomer of Miles To Memories — to see just how many thousands of dollars readers of those articles have collectively lost.

This incident was enough for Dakota of Majored in Miles at TravelUpdate to declare why he is finished with gift card arbitrage — and be sure to read the comments of that article as well.

6. Promotional “Coupon” Cards When You Buy Gift Cards

Christmas, Mother’s Day and Father’s Day are just three of the holidays on which retailers and restaurants hawk their incredible promotions. For example: simply purchase $50.00 in gift cards and you will receive a coupon worth ten dollars which you can use at a later date. Sounds like an amazing deal — right?

Not really — if you happen to take advantage of special offers on a regular basis.

First, the promotional coupon cards are only valid after the gift card promotion ends…

…and then, the promotional coupon cards are only valid for a certain duration of time — perhaps as short as one month; or perhaps as many as three months. If you do not use this card within the valid duration, the value is gone forever and there is no way to recover it.

Also — unlike actual gift cards — restrictions apply as for what you can use the promotional coupon cards. On many of them, you cannot apply taxes, gratuities, alcoholic beverages, deliveries, take out orders, or purchase additional gift cards.

You also cannot carry a balance with the promotional coupon cards. For example, if you purchase a meal which comes to a total of seven dollars before taxes and gratuities and you have a promotional coupon card worth ten dollars, you cannot apply the taxes and gratuities — and because promotional coupon cards are usually for single use only, once you spend that seven dollars, you lose the other three dollars because promotional coupon cards do not carry any leftover balances.

Finally — and this can be the deal breaker — the promotional coupon cards are typically not valid with any other discount offer and cannot be combined or stacked with other offers. For example, if the restaurant is offering a promotion where you can buy one meal and get one free, you cannot use any promotional coupon cards…

…so in that example, of which would you rather take advantage: ten dollars off; or buy one meal and get one free? With few exceptions — such as if the two meals totaled fewer than $20.00 before taxes and gratuities — the answer is obviously the buy one meal get one free deal.

Play your promotional coupon cards right and you can benefit — but count on it being something which may resemble a scam more than anything else due to a plethora of terms, conditions and restrictions.

7. Spending Too Much Money to Purchase Gift Cards Over Too Long a Period of Time

Spending money on gift cards can potentially be a good investment if you come out ahead on the deal. In most cases, purchasing gift cards for yourself and getting no additional value from them really does not seem sensible, as you are tying up your money in something which has a limited use…

…but if you spend hundreds of dollars on gift cards to save a measly $20.00 as an exaggerated example over a long period of time, you could be losing out on other areas when you can earn more of a return on that investment.

Additionally, a concept in finance known as the time value of money purports that money which is available at the present time is worth more than its identical sum at a time in the future due to its potential earning capacity. This concept generally does not apply towards the short term of a few days, weeks or months, with which most purchases of gift cards are used — but if you happen to hold on to gift cards worth a significant amount of money over a long period of time, you may be losing on the potential value of that money even though you have technically not lost any actual money.


I never pay full price for a gift card — and neither should you.

For me, there has to be a value-added benefit for me to go through the trouble of purchasing a gift card. Maybe a portion of the value of the gift card will be donated to a good cause. Perhaps purchasing a gift card will save me some money. For example, you could have purchased gift cards from Delta Air Lines worth at least $250.00 last year and received an electronic gift card for Hotels.com worth $25.00 at no extra charge while supplies lasted — and both gift cards have no expiration date, so funds do not expire.

To save money on gift cards, ensure that you keep up with the myriad of deals offered on them on what seems to be every day. For example, many deals on gift cards are conveniently listed here at Doctor of Credit.

I have personally received gift cards as a token gesture for charitable activities such as donating platelets. In fact — in cities such as Milwaukee, Atlanta and Chicago — the American Red Cross offered an incentive in 2016 through which if you donated blood or platelets, you received a gift card claim code worth five dollars at Amazon; and offers similar to this one reappear from time to time. Check with the American Red Cross in your local area to see if this incentive is available to you in order to mitigate the current critical blood shortage.

You could also earn free gift cards by participating in a particular promotion; and contests and sweepstakes offer gift cards as prizes which you can win — and sometimes, you do not have to look beyond BoardingArea to find them.

Gift cards also can be used as a gift — surprise, surprise — to someone who enjoys patronizing a particular establishment; but you are unsure of what exactly that person would want. Although money would accomplish the same task — in fact, the recipient could spend it anywhere he or she wants at any time — gift cards are not quite as impersonal.

In any event, ensure that you get the maximum use out of any gift cards which you possess; but realize that there are inherent risks with purchasing, using or selling gift cards — and ensure that you are completely aware of those risks to avoid any of the six pitfalls of gift cards.

All photographs ©2016 by Brian Cohen.

5 thoughts on “7 Pitfalls of Gift Cards Which Can Cost You Serious Money”

  1. me says:

    well written article!! these are reasons I now stay completely out of gift card (except iTunes/Starbucks/Amazon/Google)

  2. Thomas says:

    Exactly. Staples $200 VGC no fee, drained within the week, AMEX, Chase offers using that on Whole Foods, Stop and Shop, Panera, Starbucks, Dunkin, iTunes, Amazon or movie GCs, etc., obviously every day spend, but why not get 5-20% off in the process.

  3. debit says:

    Well done.

  4. Boraxo says:

    I see no reason to buy GCs unless you are desperate to meet required spend for a credit card signup bonus. 10% discount off is not sufficient incentive given the risks above unless you are absolutely certain to spend it within 30-60 days (like the Hyatt GC promo). Maybe worth saving $100 on a $1000 hotel bill. And even then you will lose out on the bonus points you would get from using your Hyatt card.

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