Hey, I've got a deal for you! You will lend me $50. In order to do this, you will have to pay me a service charge of $3-7. If I keep the money for longer than a year, I'll owe you $2 less every month. If I don't pay you back in 3 years, I'll owe you nothing at all! Great deal, huh?
You'd think no one would be crazy enough to lend that money, but it's actually incredibly popular to do exactly that: millions of American Express gift cards are sold every year. You give American Express money up front that they don't have to repay to a merchant until later-- essentially you are giving them a loan, but they will charge you for the privilege.
I noticed this story in today's business section-- fortunately, American Express is eliminating the most obnoxious of those fees, the monthly charge for not using your card for over a year. But they still charge a purchase fee of $2.95-6.95. (More info on gift card fees.)
I think I've only been given an American Express gift card once, but I thought $50 was $50-- I had no idea how much of that could be eaten up in fees. If you want to give someone a gift, just buy them an actual present, or give cash.
Thursday, October 01, 2009
Whaaa?? The Gift that Does NOT Keep on Giving
Labels:
banks,
best don't-buys,
cash,
fees,
gift cards,
gifts,
mistakes
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9 comments:
Thanks for the post. Really interesting information. Bottom line, read all the fine print when it comes to credit cards, bank cards, etc.
I completely agree! Some gift cards do not have any fees and don't cost anything extra to buy (like Dillard's and Bath and Body Works). I much rather give/receive cash or an actual present that would be appreciated.
Completely absurd that Amex ever had a fee such as that. In my personal experience they are the worst credit card issuer on the planet. Why should anyone pay to use a their card?
Faxless Payday Loans
There are a lot of fees associated with gift cards that consumers do not know about. Here comes American Express to the rescue saving us from hidden fees.
This is actually against the law in CT. Several years ago, the state passed a law that said gift card issuers cannot deduct any type of fee from a gift card. So in CT, $50 is $50. Good thing, cuz I have some gift cards that I don't use until almost a year since I've gotten.
It might look old fashioned or might violate etiquette - For gifts I always give cash. I bet the recipient is truly happy every time!
FYI the purchase fee does not come out of the amount on the card, it is paid to the merchant directly when you buy the card, i.e. the $50 card costs the purchaser $56.95.
The Chinese give cute little envelopes with cash in them as gifts.
In general, gift cards are great for businesses because they get the money upfront and it is well known that fully 20% of gift cards are never redeemed.
The "lack of usage fees" probably originated because without them the company (say, AMEX) could never actually use or claim the abandonded money as it could always theoretically be reclaimed later. (initially, the purchase price is probably held on the company's books as a loan to the company that the company is obligated to repay on demand or use of the gift card) But if the company depreciates the account by a certain amount after say, a year, which is basically the time you can say the card won't be used if it hasn't already, then the company can officially take the money as income.
I'm not an accountant BTW and I've never dealt with this aspect of gift card accounting, these are just my thoughts.
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