Last week I found a $20 bill in the glove box of my car. It was an emergency $20 and had been there for over a year. Because it’s been out of circulation a year, should I send this back to the Bank of Canada and get them to shred it? Are you nuts? Of course not!
Yet, that’s exactly what happens when almost every pre-paid credit card, also called stored-value cards, and gift cards, which don’t get used for a year. They’re either void, deduct a ton of inactivity fees each month, or simply wipe out the whole balance left. Not to mention, around 10% are never redeemed.
When we purchase, or give someone, a pre-paid credit card or gift card, we are parting with real cash and only get an I.O.U. That doesn’t make sense in the first place. To add insult to (financial) injury, we also have to pay a fee up front, which is deducted from the value. So a $50 card really turns out to be around $40 to $46. If most cards are not used within six months, the next wave of fees starts to come off the balance: monthly inactivity fees, expiry fee, and the likes. Oh, and if the pre-paid credit card is lost, there’s also a $15 to $25 replacement fee, to add insult to injury.
In the coming months, millions of people will purchase gift cards and pre-paid credit cards for Christmas presents. But did cash somehow become a problem? Cash doesn’t have an expiry date, you won’t be charged an inactivity fee, and fifty bucks really is fifty bucks, without a purchase fee to get that $50 bill!
Banks love marketing pre-paid credit cards. They make the same fees and profits as they do on credit cards, but without any of the credit risks. Retailers love them, because they’ve got all your money up front, and you, or the recipient, have no choice but to deal with their business. But you had better hope the retailer is still in business when you want to use the gift card! In this economy, that isn’t guaranteed. How many examples would you like of retailers who are out of business, or went bankrupt, leaving behind millions of dollars of worthless gift cards that can’t be redeemed?
This year, care enough about the person you are shopping for, to give them cash. What you give is really what they get. They’ll have totally flexibility of when and how to spend it, and won’t have any fees. When it comes to purchasing gift cards, the newest trend, and spreading very quickly, is buying gift cards at a discount. It was started by Costco where you can purchase a $100 gift card for $80.
And because you care enough about them – print a copy of this story and enclose it with the cash. They’ll thank you for it, and will understand why you care enough to do what previous generations did for decades, before retailers and financial institutions stepped into the middle to make a bunch of money for doing nothing.