Mellody Hobson's Gift Card Advice

According to the National Retail Federation, the average consumer plans to spend $702 on the holidays in 2004, an increase of 4.5 percent from 2003. And the top gift this year: gift cards, which are expected to surpass clothing for the first time, according to a survey by Deloitte & Touche. Additionally, 74.3 percent of consumers will buy gift cards this holiday season, with the average gift card purchaser buying 3.38 cards for a total of $108.28. With this level of demand, consumers are expected to spend $17.34 billion on gift cards this holiday season.

Although the packaging may differ, gift cards are essentially debit card look-alikes which allow a gift giver to place a certain dollar value on the card, which can then be used like a debit card at participating merchants. Gift cards are offered by retailers, restaurants, hotels, shopping malls, credit card companies, banks and even airlines -- examples of issuers include Target, Gap, Home Depot, Starbucks, McDonald's, Dunkin' Donuts, Chili's, Marriott Hotels, American Express, Bank of America and America West Airlines.

Last-Minute Shoppers

For all those last-minute shoppers, gift cards can be tremendously useful. Many issuers now enable you to order gift cards online and have them delivered by Christmas day. If you are not sure what to get, ( is an online vendor for gift cards and certificates. Partnering with hundreds of merchants -- including Crate & Barrel, L.L.Bean, Blockbuster, Macy's, AMC Theaters and Domino's Pizza -- allows you to order gift cards from various merchants which can be mailed directly to your recipients. The site also allows you to search for the store locations of each merchant by city, state and zip code. Keep in mind, as with other gift cards, gift cards ordered through are not returnable and if the merchant goes out of business, will not provide refunds.

Buyer Beware

While there are many obvious benefits to gift cards -- gift recipients can get exactly what they want and they can take advantage of post holiday sales -- there are also hidden costs and restrictions to be wary of:

      Fees to purchase gift cards: Although retailers generally do not charge consumers processing fees to purchase gift cards, many credit card companies and banks do. For example, American Express charges $3.95 for gift cards ordered online and $7.95 for those ordered by phone, while Bank of America charges fees ranging from $5.95 to $11.95 depending on the value of the card and how it is ordered (online or telephone).

      Expiration dates and reactivation fees: Recent regulations in more than two dozen states -- including California, Connecticut, New York, New Hampshire and Illinois -- have sought to prevent customers from being penalized by expiration dates on gift cards. For example, in Illinois, the Gift Certificate Act prohibits the sale of gift certificates with an expiration date or corresponding service fees. While these regulations do help the consumer as it pertains to gift cards from retailers, national banks are not subject to the same state rules. As such, bank-issued gift cards still employ expiration dates and maintenance/dormancy fees. Dormancy fees are assessed after a certain period of inactivity ranging from six months to two years, and the amount can vary from $1 to $5 per month. For example, Comerica Bank issues Visa gift cards in denominations ranging from $25 to $1,000. There is a $5.95 processing fee to purchase the card, which expires after two years. Additionally, if the card is inactive for six months, $2.50 is deducted each month from the value of the card.

      No cash back on the amount you do not spend: Unlike a traditional gift certificate, which often gives cash back if your purchase is less than the amount given, the amount on most gift cards must be used entirely. Since up to 20 percent of gift card recipients never use the full value of the card -- worth $4.5 billion a year -- this can be a significant disadvantage.

      It will cost you to check your balance: Many bank and credit card-issued cards enable you to check your balance, but at a price. Although American Express offers this service free of charge, the AAA Visa Gift Card (MBNA American Bank) charges 50 cents per call while other cards charge as much as $2 per call.

      Restricted replacement for lost or stolen cards: Many merchants, such as Barnes & Noble and Chili's, treat gift cards like cash -- if the card is lost or stolen, it cannot be replaced. While other issuers may offer to replace a lost or stolen card, you may be charged a replacement fee, which can range from approximately $5 to $10. In addition, you may have to provide proof of purchase and/or supply the card's identification number.

For those interested in purchasing gift cards, here are some simple suggestions to make it easy and worthwhile for both you and the recipient

      Read the playbook: Each card issuer has its own set of rules, so it is critically important to ask the right questions and read the fine print before purchasing and using these cards.

      Stick with retailers: Although bank-issued gift cards provide for more variety with regards to how the money can be spent, these cards also typically come with higher fees and expiration dates. That said, if you receive a bank-issued gift card, be sure to use it quickly to avoid any problems.

For more information on buying gift cards, visit

Mellody Hobson, president of Ariel Capital Management ( in Chicago, is "Good Morning America's" personal finance expert. Ariel associates Matthew Yale and Aimee Daley contributed to this report.