Gift cards: fees, scams, and how not to lose the balance

Gift cards are the most popular holiday gift in America. They are easy to buy, easy to wrap, and the person getting one can pick exactly what they want. That sounds perfect. But gift cards also come with some traps that can quietly drain your money before the card ever gets used.

Here is what you need to know before you buy — or receive — a gift card this holiday season.

How fees work

Not all gift cards charge fees, but many do. There are two main types you need to know about.

Store gift cards — cards that only work at one specific store or restaurant — usually have no fees and no expiration date. That is the good news.

General-purpose prepaid cards — cards with a Visa, Mastercard, or American Express logo that work almost anywhere — often come with fees. These can include:

• A purchase fee when you buy the card (sometimes $3 to $6)
• A monthly 'inactivity fee' if the card sits unused for 12 months or more
• A fee to check your balance by phone

Federal law says a gift card cannot expire for at least five years from the date you bought it. And inactivity fees cannot kick in until the card has been untouched for at least 12 months. But fees are still real, so read the fine print on the back of the card or the packaging before you buy.

How scammers steal gift card balances

Gift card scams are one of the fastest-growing types of fraud in the country. Scammers use two main tricks.

The first trick happens in the store. A scammer picks up gift cards from the display rack, carefully peels back the sticker covering the PIN number on the back, writes it down, and sticks the sticker back. Then they put the card back on the rack. When you buy it and load money onto it, they drain the balance online before the gift ever gets opened.

The second trick is a phone or text scam. Someone calls or texts claiming to be the IRS, Social Security, a utility company, or even a family member in trouble. They say you must pay immediately — using gift cards. This is always a scam. No real government agency or legitimate business will ever ask you to pay with a gift card.

How to buy a gift card safely

• Pick cards from behind the counter or a locked display when possible
• Check the back of the card before you buy it. The PIN sticker should be fully intact and not look like it was peeled and re-stuck
• Keep your receipt. It has the card number on it, which you may need if something goes wrong
• Register the card online after buying it if the issuer allows this — it makes it easier to replace if lost or stolen

What to do with a gift card you will never use

Maybe you got a card for a store you never visit. Do not let it sit in a drawer until fees eat the balance. Here are some options.

Sell it on a gift card exchange site. Sites like Cardpool or Raise let you sell unwanted cards for cash — usually 70 to 90 cents on the dollar. That is better than nothing.

Use it to cover a regular purchase. If the card is for a grocery store or gas station, use it on something you would buy anyway. That frees up cash in your regular budget.

Give it to someone who will actually use it. Re-gifting a gift card is not rude — it is practical and kind.

A quick reminder about January

Gift cards feel free when you receive them, but money spent buying them is real. If you are on a tight budget, buying a $25 gift card is the same as giving $25 in cash. Set a firm dollar limit for gift card giving before you shop. Stick to it. Your January self will thank you.