Do Gift Cards Have Fees?

Gift Card Girlfriend answers the gift card questions you’ve been asking.

Gift card fees such as activation fees, dormancy fees, non-use fees and service fees are typically only associated with bank-issued gift cards (e.g. Visa® gift cards, MasterCard® gift cards). According to the Federal Gift Card Law (effective August 22, 2010), all fees must be clearly disclosed on the card or the card’s packaging at the time of purchase, and post-sale fees (one per month) may only be charged if the gift card has gone unused for over a year. State laws, however, may provide tighter restrictions. In Colorado, for example, retailers cannot charge post-sale fees on their gift cards. To get a more detailed answer to the question, “Do gift cards have fees,” keep reading.

receipt shows hidden fees
photo credit: Paul Swansen via flickr cc

Types of Gift Card Fees

There are various types of fees that can be charged against a gift card’s balance, but unless you have a bank-issued gift card, you probably won’t run into any of them. Below is a detailed explanation of typical gift card fees.

Activation Fees

When buying retail gift cards from places such as JCPenney or Macy’s, you typically only pay the dollar amount you want to put on the card. Activation is free (and encouraged!) because one of the ways merchants make money with their closed-loop gift card programs is by having recipients come back to their stores to shop. Statistics show that customers who shop with gift cards will overspend the value of their cards, and, often times, require more than one trip to deplete card balances entirely. As a result, retailers have the opportunity to sell more merchandise and convert gift card recipients into brand fans. Since closed-loop gift card programs are highly profitable in ways such as this, merchants eat (or bury) the cost of making cards available so the plastic feels “free” to you and me.

With bank-issued gift cards, on the other hand, the provider does not make money when the gift card is redeemed. Called “open loop,” these cards can be used wherever credit cards are accepted, so there are no shopping kickbacks to be had. Thus, activation fees are often charged to cover the cost of the plastic plus all the other mechanisms required to make this most-flexible gift card work.

Charging for activation is legal provided the fee amount (or method in which it will be calculated) is clearly disclosed prior to the sale of the gift card. (Learn more about how gift cards work and stores make money.)

Dormancy, Inactivity or Non-Use Fees

According to federal law, both retailers and bank-issued gift card providers can charge a non-use fee against the balance of a gift card if it has been inactive for over a year. Some states, however, say otherwise. In Michigan, post-sale fees are prohibited for retailer gift cards, but are allowed on bank-issued cards. Minnesota has the same laws, but in the “Magnolia State,” post-sale fees are permissible for both. In all cases and in all states, the fees must clearly be disclosed on the card or the card’s packaging prior to purchase. (Check your state gift card laws to know what to expect.)

Just because merchants CAN charge non-use fees, doesn’t mean they will. Retailers seldom take advantage of this option, but bank-issued gift card providers have to make money somewhere, so non-use fees is one of those places. I’ve heard of providers charging as little as $1.99 per month of inactivity and as much as $25 every 6 months. Since there are no federal or state limits, the amount charged is simply a business decision. Non-use fees may be charged until the value of the card is depleted, the card is used again (is no longer inactive) or the card expires. Legally, only one post-sale fee can be charged each month.

Reload Fees

Like an activation fee at time of purchase, reload fees may be charged when money is added to a gift card after the initial purchase. These fees, of course, must also be disclosed at the time of purchase. (Learn more about reloadable gift cards.)

Card Replacement Fees

If a gift card is lost or stolen, providers may charge a fee to replace the gift card. Replacement fees are not allowed on cards that have expired if the funds are still valid–I know that may sound confusing. With some types of cards, you can still recover the gift card dollar amount if the physical plastic has expired. Read the terms of your gift card to find out, or ask the company if they will honor an expired card.

Shipping Fees

Finally, like any other product ordered online, some gift card providers require customers to pay for shipping. I’ve noticed that most merchants send plastic gift cards free of charge (again, wanting to get that card in your hands so you can redeem it for more profitable merchandise!) while providers with lower profit margins charge for shipping. (One way to save on shipping charges is to order e-gift cards instead.)

What You Need to Know

The bottom line is that retailers typically do not charge gift card fees, but bank-issued card providers do. So, if you see a MasterCard gift card with a low (or no) activation fee, for example, then review the terms on the card to see if higher-than-normal fees will be charged post-sale if the card isn’t used. Conversely, pay a little more up front for a card and the non-use fees may be lower than expected. If both the activation fee and back-end fees are reasonable, then check for expensive shipping charges or some other “service” fee that’s a cash cow for the supplier. Providers have to make money somewhere, and fees are one of the primary ways they can legally do it. Since the terms must clearly be disclosed prior to sale, you should be able to make an informed choice in picking the gift card that’s right for you. If you already own the card, use it as soon as possible so you don’t have to worry about these fees at all.

If you have other gift card questions, add a note in the comments below or reach out to me at @GCGirlfriend on Twitter.

Happy Gift Carding!

~Gift Card Girlfriend

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