Gift cards growing in popularity but beware their dangers

Lillestrand says there are a lot of ins and outs to gift cards that are not obvious to many consumers. He says to always look for fees and expiration dates. Gift cards with credit card logos (he calls them bank-issued gift cards) often have more fees and almost always have a purchase fee of $3 or so.

"Not all gift cards are created equal," he says. "We are talking about individual products."

Lillestrand's website uses a set standard to judge the different gift cards and rates them. Things that could affect a card's rating include:

• Will a retailer replace a lost or stolen card?
• Is the card redeemable at all locations?
• Can the card be used at both the physical stores and online?
• Can the card be used across the different brands of the same company?

States taking gift cards' value

Some states are considering unused gift cards as abandoned property and are colleting the value of the card from retailers. Lillestrand says card holders could be in different states and suddenly find their card's value has been seized by, say, New Jersey. They can still get the money — if they are willing to go through the process of reclaiming abandoned property in another state.

"It gives people a terrible consumer experience," Lillestrand says.

Scripsmart.com has a section that looks at the various states' laws on gift cards.

"I don't think it is unrealistic to have a gift card for five or six years and not use it," Lillestrand says.

Research in 2011 by Consumer Reports found that about 25 percent of adults still had a gift card that was more than a year old.

Why don't people redeem their cards? The Consumer Reports survey found:

• Thirty-seven percent haven't found anything they wanted to buy.
• Thirty-six percent haven't had the time to use the gift card.
• Thirty-four percent forgot about the card.

Buying your own gift

One way retailers make money off gift cards is because, according to the Consumer Reports survey, two-thirds of people who receive a gift card end up spending more than the card's value.

"It feels like you are getting a $50 discount," Lillestrand says. "So consumers tend to spend more. I don't see that as a bad or a good thing."

Marsh, however, does see a problem if using cards leads to more spending.

"It is just more efficient to give a cash gift than a gift card," Marsh says.

"There is nothing wrong with giving cash," Lillestrand says, "but there are times, for whatever reason, that people would rather give gift cards."

E-cards are on the rise, Lillestrand says, but are in the minority so far ($3 billion out of the $110 billion gift cards projected to be sold in 2012 according to CEB TowerGroup's recent study). He sees features with e-gift cards developing — such as a reminder popping up on a smartphone as a person drives by Target that tells the person he or she has a e-gift card for the store.

Such a feature probably wouldn't help Lillestrand much. He likes gift cards, but he doesn't have any at the moment.

"I have zero," he says. "I've gotten good at using them fast."

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