Keep Big Retail From Stealing Your Money

It's that time of year again...

The holiday season is over. There are no more Christmas gifts to be given, no more family dinners to endure... And if you're like many people, you're probably left with a stack of almost-empty gift cards in your wallet after trying to spend them at the mall.

It's hard to believe how many people let their gift cards go to waste.

Of the estimated $130 billion worth of gift cards purchased every year, consumers leave an average of $1 billion unspent... allowing corporations to keep that money in exchange for absolutely nothing.

That's nuts. People receive money that's already earmarked for their own spending, and they're voluntarily letting big companies take it back instead.

But it doesn't have to be that way. Even if you have less than a dollar left on a gift card, you can still find ways to spend those extra cents...

There are two common types of gift cards: "open loop" and "closed loop." An open-loop gift card usually takes the form of a Visa, Mastercard, or American Express card. These are customizable cards that can be used anywhere regular credit cards are accepted. A closed-loop gift card – also called a "brand specific" card – is only intended for use at the store, restaurant, or service provider specified when you buy it. A Kohl's gift card that can only be used for purchases at Kohl's is an example of a closed-loop card.

The type of gift card you receive matters more than you might think. While both types of cards are ultimately used to make purchases, each type comes with its own set of restrictions.

Open-loop gift cards allow the recipient the freedom to buy whatever he wants, so they're a good option if you're not sure where somebody shops or what he'd like to receive as a gift. They're basically the gift-card equivalent of handing someone a $50 bill.

The only problem... open-loop gift cards make online transactions more complicated.

If you're shopping online, there's usually a place to enter your credit card number when checking out and a separate place to enter any gift card numbers and promotional codes. But companies process open-loop gift cards differently from their own store-specific ones. This means when you make an online purchase, you enter the code for an open-loop card in the regular credit-card field. If you don't have enough money on the gift card to cover your entire purchase, there's nowhere to enter another credit card number to pay the remaining balance... meaning that last $2.50 on your gift card is essentially useless when shopping online.

There are a few ways around this, though...

One of the easiest methods is to use what's left on your card to buy an "e-gift card" at an online retailer like Amazon or Walmart. These are online gift cards that can be purchased in any dollar amount with no fees and can be used at the retailer's web store. Rather than receiving a physical piece of plastic, you'll get an electronic code – usually through e-mail – within minutes of purchasing the e-gift card. One of my researchers tried this method with a stack of American Express gift cards, some of which only had a few dollars left on them. She converted all of them to Amazon e-gift cards and was able to easily spend them on Amazon's site.

Of course, sometimes there's no substitute for an actual store... Most brick-and-mortar retailers will let you use up what's left on your gift card if you make a purchase in person or over the phone. You can pay for the rest of the purchase the same way you normally would.

Store-specific cards are often easier to use up when shopping online, but they're intended to require the cardholder to make purchases only at one store.

Many people don't realize that a lot of companies allow one store's gift card to be used at "sister stores" as well. (A Gap gift card is also good at Old Navy, Athleta, and Banana Republic, for example.) So if you've already bought everything you want from one store – or you never wanted anything from there to begin with ­– do a little digging to see where else your card will be honored. Some stores, like Target, will even allow you to trade in many restaurant and airline gift cards for one of their store's gift cards.

In 11 states, you can exchange your gift card for a cash payout when the balance is low enough. Keep in mind, this usually only applies to gift cards with less than $10 on them (at most), depending on the state. You can find a list of states that allow cash payouts here.

And remember... gift cards don't last forever. Some expire after five years – or worse, charge an inactivity fee after a year (sometimes as much as $5 a month for every month you don't use it). Don't let your cards sit for too long... And make sure you check the company policy for each gift card so you don't inadvertently give your own money back to the store.

What We're Reading...

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health and Wealth Bulletin Research Team
February 14, 2019