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Expired Gift Card? Know the Law & Maximize Your Gift Cards

Updated on May 18th, 2022
Fact checked by John Boitnott

John Boitnott

John Boitnott graduated from UC Santa Barbara with a Masters Degree in Education. He worked for 14 years as a broadcast news writer for ABC, NBC, and CBS News where he covered finance, business and real estate. He covered financial news for SAP for four years. Boitnott is now working as a columnist for The Motley Fool where he covers personal financial and investing strategies.... Read More

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Over the weekend I attended a birthday party for one of my best friends. After things wound down, we reflected on the day’s festivities. Overall, it was a success. But, he did confide to me that he wasn’t too keen on the number of gift cards he received.

Of course, he was grateful for the sentiment. And, some of these cards could come in handy, others not so much. For example, he got a card from a clothing store that never patronizes. But, his main gripe was that he forgets he has them. As a consequence, they go unused.

This isn’t a problem exclusively for my friend. According to a Bankrate poll, more than half of U.S. adults (51 percent) forget to use their gift cards. The result is a loss of $15.3 billion in value nationwide, which amounts to roughly $116 worth of value per person. There is some good news, though. This is a decrease from $167 in January 2020.

More than half (56 percent) of millennials haven’t spent their gift cards, worth an average of $139 per person, compared with 52 percent of boomers ($113), 47 percent of Gen Xers ($112), and 46 percent of Gen Zers ($81).

When Will People Use Their Gift Cards?

Ninety-five percent of respondents who said they did not use unused gift cards, vouchers, or store credits hope to use them at some point. Of those, more than half are planning to use them all (51 percent), and fewer (30 percent) are planning to use most of them.

In terms of planning to use them most, boomers accounted for the largest share of respondents (63 percent). Generation Xers (54 percent), millennials (42 percent), and Gen Zers (32%).

But, here’s the problem. If you wait too long, you may be disappointed to find out that the gift card has expired. It is estimated that nearly half (49%) of adults lost free stuff at one time or another.

The Problem With Expiring Gift Cards

Personally, the thing that grinds my gears with expiring gift cards is that it’s a lose-lose situation.

For one, it’s got to be a bummer for the person who purchased the gift card. Let’s say that my friend never used that $50 gift card to that clothing store? The person who gave him that card could have just taken a $50 bill and flushed it down the toilet. And, if they found out about this, that would understandably upset them.

But, what if he does decide to use the gift card eventually only to be told that it’s expired? There’s a very good chance that this won’t paint the business in a good light. In other words, this isn’t going to improve the customer experience. And, since he rarely goes to this store in the first place, that doesn’t motivate him to ever go back.

Now, to be fair, unused gift cards do present an accounting issue for businesses. Some large corporations, for instance, show that these unused gift card liabilities can amount to significant amounts;

  • Walmart: $1.9B (2019)
  • Amazon: $2.8B (2018)
  • Starbucks: $1.6B (2018)
  • Target: $727m (2018)

But after a certain amount of time (typically between six and 24 months), companies can also convert these liabilities into what’s called breakage income. That’s how much money the company says will never be redeemed from gift cards. So that’s basically free money the company is getting.

Despite this, it may be in the business’s best interest to not let gift cards expire. Aside from the bad PR, it’s been found that 75% of people who redeem gift cards end up spending more than they planned.

Gift card Expiration Laws and Gift Card State Laws

Thankfully, gift certificates and store gift cards don’t expire for five years because of the Credit CARD Act of 2009. At the same time, if you don’t use your card within a year, issuers can charge you an “inactivity fee.”

All 50 states are subject to this rule. In addition, the recipient of the gift card needs to be aware of the terms and conditions. These rules include information on the expiration date. The receiver must, however, follow certain specific circumstances to this rule in some states.

A few states have enacted laws regulating gift certificates and gift cards. Store gift certificates and gift cards aren’t allowed to expire or charge dormancy fees in California (except under certain circumstances), and if the balance is under $10, you can use it for cash.

As for fees, this also varies from state to state. In some states, for example, the card packaging must include a disclosure of any fees. The fees should not begin to apply until one year after inactivity, and there should only be one fee per month if states allow post-sale fees.

A few states, however, govern the issue of post-sale fees for gift cards using their own legislation. During the purchase process, there are fees charged for maintenance, activation, and transactions. In addition to this, the gift card must include a statement describing the fees associated with it.

Check State Statutes for Gift Cards and Certificates published by the National Conference of State Legislatures to find out whether your state has laws covering gift cards and certificates. Additionally, you can get information about the state’s consumer protection laws from a local lawyer.

Ways to Maximize Gift Cards

By keeping track of your gift card usage in a timely manner you can prevent confusion over expiration dates or fees. And, most importantly, you can maximize your gift cards.

Tips When You Get a Gift Card

Treat your gift card like cash.

If you got a crisp $20 bill in a birthday, holiday, or retirement gift card, you’d immediately put it in your wallet. As such, it will be accessible the next time you go shopping. Use the same concept with gift cards. That means instead of throwing your gift card in a drawer, place it in a spot that’s more visible. Or you can set up a reminder on your phone to remind you to use the gift card sooner than later.

Plan on using it this month.

It’s a good idea to make an appointment or a reservation right away if it’s an experience gift card, such as one for a restaurant, movie theater, or spa.

It shouldn’t be left unused for more than a year.

While you do have five years to use the gift card before it expires, that doesn’t mean it will last that long. For example, if you have a gift card to a restaurant it could close in three years. Obviously, that means that the gift card can’t be used.

Add it to an app, if applicable.

If you have gift cards from Dunkin’ Donuts, Uber, Apple, or Amazon, these can be redeemed as credits on your account so that they can be used as you wish. As a result, you won’t have to worry about losing the physical card or not having it with you when you need it.

Sell your gift card.

It’s possible to cash out your gift card at the company where it was issued if your state allows it or sites like Raise. If your gift card balance is under $10, you can normally cash it out, though you can ask the retailer if you can. Another option? Instantly trade unwanted gift cards at Target for store credit.

Be strategic.

Using gift cards strategically is another way to save money when redeeming them. If the store is already offering a special promotion with your gift card, you are more likely to get a discount or bonus gift.

Tips When You Give a Gift Card

Consider what the person likes.

The likelihood of a gift card going unused is higher if it is for a store or service that the recipient just doesn’t like or cannot use. Shop at a store that offers many items, like Target, when in doubt. Or, even better, an option like a Visa gift card that they can use wherever they want.

You should get them something that is convenient for them.

If the recipient lives far from the location, theme park gift cards or museum memberships are unlikely to be used. In the same vein, avoid giving gift cards that will require the giftee to spend more than their budget allows. A $25 gift voucher to upscale restaurants or designer stores, for example, isn’t going to cut it.

Buy on sale.

You can save money on gift cards by buying them at a discount. Although you’ll be buying them for less, their value remains the same. So, in a way, it’s like getting free money.

Earn rewards.

In addition to earning some bonus rewards points, you can also earn them when you buy gift cards. Most rewards programs allow you to buy gift cards using your rewards points. When you buy gift cards, you should buy them from retailers where you are a rewards member, so you can earn points. You can then redeem these points for extra savings or free products at a later date.

Moreover, you can also use this trick for credit card rewards programs as well. With your credit card, you can earn cashback or miles even if you are not a loyalty or rewards member of the retailer.

Consider an e-gift card.

People who are digitally native will appreciate the ease of loading a gift card right into their wallets and apps by sending it directly to their emails or texts.

Shop local.

Buying gift cards from your favorite small businesses can be a great way to support them. Despite the fact that it may not save you money, it’s an excellent way to ensure that your money supports your community and local businesses.

In addition, if you personally know the family or individual, this is a great way to give them an extra boost in revenue and business.

Frequently Asked Questions About Gift Cards

1. How do gift cards work?

Gift cards can be used to buy things at restaurants, gas stations, and retail stores. Gift cards can be redeemed at places that accept them after you load a specific amount of money onto the card.

There are two types of gift cards: open-loop and closed-loop. A gift card that can be used around at any location can be described as an open-loop card. As an example, a Visa gift card can be redeemed wherever Visa is accepted.

Conversely, a closed-loop card can only be used at a particular merchant. In other words, if you purchased a gift card from Starbucks or Amazon, you could use it only at the retailer that issued it.

2. How long do gift cards last?

Federal law stipulates that gift cards can only expire five years after purchase. Its value can be diminished if it’s not used within 12 months, as fees can be charged for inactivity, dormancy, and service. There can be no more than one charge per month, and the fees must be disclosed in advance to the user. Be sure the recipient and you are aware of the fees so they can use their cards to the full value.

3. Can I get cash from a gift card if I have a PIN?

Gift cards used to have to be treated as credit cards at the point of sale because they didn’t come with a PIN. Since prepaid cards typically have PINs, they can be used either way.

As of 2013, the Federal Reserve required that all people be able to get a PIN for a general-purpose gift card, so they could choose what type of transaction to make. However, this law led some consumers to believe they could withdraw cash from their Visa gift cards using the PIN at an ATM or through a merchant’s point of sale. But they can’t. A PIN simply allows debit transactions to be performed on gift cards.

While you can not withdraw money from an ATM or get cashback from a retailer with gift cards this law does permit these transactions like a Visa reloadable prepaid card.

4. Where can I sell a gift card?

You can exchange your gift card for cash. Or another gift card or cryptocurrency through online gift card resellers And, also through very select retailers. Ideally, you want to work with reputable gift card resellers that offer consumer protection such as Raise, CardCash, or Gift Card Bin.

John Rampton

John Rampton

John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

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