Gift cards: Almost as much a present to the giver as to the recipient.
It's all about convenience.
Step One: Identify a store or product favoured by the people you'll give the cards to.
Step Two: Figure out how much to spend.
Step Three: Buy gift cards. There, your holiday season shopping is done. No need to thank me.
Gift cards are so easy that you can still use them even if you trip over Step One. Just buy a Visa, MasterCard or American Express gift card that can be used pretty much anywhere credit cards are accepted.
Retail gift cards are an all-around better deal for both givers and recipients, but a new card just introduced by American Express narrows the gap considerably.
The Amex gift card, available at Shoppers Drug Mart stores, has done away with an absolutely nasty array of fees charged by its competitors. You still have to pay a purchase price of $4.95 to $6.95 to buy a card, which is in addition to the face value you're buying. But the recipient is in the clear when it comes to fees.
Gift card facts and figures
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The cost of Visa and MasterCard gift cards starts with a purchase price of between $3.95 and $6.95. After six months, the cardholder typically has to pay maintenance fees of $1.50 or $2.50 per month until the card balance hits zero. When the card expires, whatever remaining value left on it is forfeited in most cases.
Here's Royal Bank's description of what happens to remaining balances left on its prepaid Visa gift card: "Upon the expiry of the card, a fee will be charged equal to the value of the balance remaining on the card." The bank says it will donate gift card expiry fees to a charity such as the Canadian Olympic Foundation, but that doesn't even rate a bronze medal as far as consolation goes.
If you lose your Visa or MasterCard gift card, you can get it replaced at a cost of $10 to $20. Most issuers let you check your balance online or on the phone at no cost, but it's possible you might have to pay as much as 75 cents per inquiry.
Fees like this tell us that the gift card market was just begging for some fresh competition. That's what Amex has delivered with its new gift card, which is replaceable at no cost, has no monthly service charge after six months and doesn't confiscate a remaining balance at expiry.
While the card does expire in five years - an expiry date is required for many kinds of credit card purchases - you can have your balance moved onto a new card at no cost by calling Amex's customer service department. One proviso with this card: not all retailers that take plastic accept an Amex card.
The gift card market in Canada is estimated to be worth about $6-billion dollars. Card buyers benefit from having a convenient, flexible option for gift giving, while businesses benefit, to use card industry lingo, through "float" and "slippage," also known as "breakage."
Float refers to the way a gift card-issuing company collects the customer's money without having to deliver goods or services right away. Slippage and breakage are terms for the estimated 10 to 15 per cent of gift cards that are never redeemed. Gift cards are also a way for businesses to bring in new customers, and they boost sales in situations where people buy things that cost more than the balance on their card.
While a little slippage is a good thing, merchants don't like the unpredictability of having lots of unredeemed gift cards at large. This explains the expiry dates that were a common gift card menace until restrictions were widely introduced by provincial governments a few years ago.
Today, expiry dates and service fees are either not allowed in many provinces or permitted only in certain instances. The net effect is that gift cards from the big credit card issuers may charge fees in some cases, while cards issued by retailers typically do not.
Then again, cards from Amex, Visa, MasterCard can be used pretty much anywhere a regular credit card is accepted. They should be fine for online purchases, and they can be used while travelling outside Canada. You can also keep track of your balance online, whereas you have to take a retailer gift card to a store and ask for your balance there.
A recent survey conducted for Google suggests that 94 per cent of Canadian consumers plan to buy gift cards this holiday season, compared with 56 per cent last year. They're not the most thoughtful gift, but the convenience factor obviously outweighs this.
