Gift Card Fees: Protections and Exceptions

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The gist: Know the law and avoid gift card fees this holiday season.

Gift cards—a safe bet or a lazy gift? Whatever your stance, you’ll probably come in contact with one or two this holiday season. Whether you’re giving or receiving, avoid unexpected fees by familiarizing yourself with what issuers can and cannot charge.

Customer protections

Recent legislation prohibits the expiration of gift cards for 5 years after issuance. Service and inactivity fees are also prohibited for the first year. Once that year is up, the issuer may charge one fee per month. Basically, if you use your gift card within a reasonable amount of time, you’ll be okay. HOWEVER, there are exceptions.

Exceptions to your protection—fees to watch out for

Standard purchasable gift cards from major retailers will almost always fall under the aforementioned protections. But there exist a few situations in which your gift card may be subject to tricky fees.

1. Rebates

Rebates issued in the form of gift cards are not protected by the 5-year-expiration or 1-year-no-fee rules. They are considered discounts and therefore not subject to the same legislation.

2. Credit card rewards

Almost any credit card rewards program will give you the option to redeem for gift cards. Oftentimes, the gift card rewards rate will be more valuable than cash back and thus more appealing. But if you’re thinking about turning your credit card rewards into stocking stuffers, be careful. These gift cards are considered “extras” and don’t have to follow the rules.

3. Bank-issued

Bank-issued gift cards provide greater versatility and flexibility. Instead of limiting the recipient to a single store or restaurant, bank gift cards can be used virtually anywhere. They’re easily recognizable by their Visa, MasterCard or American Express logos. But while their universality is certainly enticing, you’ll want to read up on the fees before purchasing and upon receiving.

Banks sometimes charge a purchase fee in addition to the actual value of the card. This is usually a few bucks and seems kind of unnecessary. If you want to give the gift of universal buying power, doesn’t it make more sense to slip some cash into an envelope and avoid the extra cost? Most bank gift cards don’t expire, but some will wither if you don’t use them soon enough. Each bank has its own terms that you should review before obtaining a card.