Tag Archives: gift cards

Pre-Paid Credit & Gift Cards: Don’t Shred Your Wallet with All Those Fees

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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.

Happy New Year – For Some More than Others

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Next year, a bunch of businesses, including American Express are going to be reinvented as banks. GMAC, the ex finance arm of General Motors, just made it yesterday. No, of course they’re not a bank. It’s just a neat way of getting in on the bailout money!

This was a hugely profitable company until they took stupid pills and got into sub prime mortgages in a huge way through their mortgage division Ditek.com that you see advertising on TV all the time. Two years ago, they made billions of dollars, last year they lost about $8 billion and now finance only about 2% of GM vehicle sales. How sad…but it was either deal with it, or get a bailout. I know I’d pick the free $6 billion…

In the U.S., the car loans 60-days in arrears is up 17% for the 3rd quarter. That just came out – and that pain will continue to worsen. If people can’t pay their current car loans there isn’t going to be any relief for the Little Three formerly known as the Big 3.

For the coming year in Canada, get ready for a ton more marketing of prepaid Visa and Mastercards. They’ll make the same profit, along with an administration fee, and have no chance of delinquency. After all, you can’t go in arrears if it’s all pre-paid. But right now they’re all freaked out since their internal rules require expiry dates and a number of provinces have outlawed that rip off.

Did you get any gift cards for Christmas? In our family there were none – OK, other than Tim Horton but if they go under we can likely shut down the whole country.

If you did, get out there and use them. The sooner, the better. It’s a real crap shoot if that merchant or restaurant will still be in business to honour the card and that isn’t worth the risk. Last week, a U.S. report showed that an estimated 148,000 retail businesses will go under in 2009. Someone paid real cash for that gift card but until you use it up, all you’ve got is an I.O.U.

Here’s one more prediction for 2009: As the economy gets worse, there’s a business that’s up 30% as a result: It’s on-line psychics. Yes, for about two to four bucks a minute, or $100 an hour, psychics are doing very well predicting your financial future on-line.

I’m going to do that free for you. Think of it as your late Christmas present: One on-line psychic was quoted as saying he tells people (that’s code words for: he tells everyone the same thing) your finances really won’t improve until about the middle of next year.

Now aren’t you glad you didn’t have to get on the computer to get that?

Have a happy New Year and we’ll talk about the “real” New Years resolutions in the coming weeks. You and I both know that today is not the day for any resolutions which will survive beyond a week or two…

Gift Cards: Be Careful This Year

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A recent survey reported that almost 60% of us would like to receive a gift card this year. OK, but hands up if you’re also fine with receiving cash.

Last year we bought around $27 billion of gift cards in North America and 95% of people bought at least one of them. But this year, we’re in a new economic reality and I want to make sure you’re really careful and think twice before buying them.

When you buy a gift card you’re paying the merchant real Canadian money. What you get in return is a piece of plastic or paper that’s nothing more than an I.O.U. That’s all it is, and you gotta hope they’re still in business when you, or the person you gave it to, want to use it.

When the retailer or restaurant goes bankrupt, your gift card is worthless. That’s a huge risk you’re taking. A year ago, who would every have predicted the Bombay Company would go bankrupt, or Circuit City, the parent company of Radio Shack, or Linens ‘N Things, to name just a few really big ones?

Sure, you’re safe with a bunch of retailers from Tim Horton to Wal Mart but better safe than sorry. This year, give them some real Canadian cash. It doesn’t go bad, has no fees or expiry date and it’s not impersonal – merchants have marketed that and it isn’t true at all. It’s safe and the same thing as a piece of plastic. But the cash is good forever. If you want, put a note in there that your financial adviser recommended staying away from gift cards in case the retailer goes under and that you care enough to do that.

If you’ve got a store credit or some gift cards around – use them up. Besides, more than 20% of gift cards, or around $8 billion, are never used! That’s a huge amount of wasted money!

And one more thing: If your church or non-profit group wants a cool fundraising idea to re-claim these unused gift cards, send me a quick note and I’ll give you a great idea.

Here Are Five New Insights That Are Definitely Worth Knowing About:

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Shell has just rolled out “Pay By Touch” biometric payments. We talked about it a few months ago and now it’s here. Yes, you just need to give them your fingerprint as payment, which is hooked to your credit card. Right now, don’t look for it here, it’s just in Chicago area Shell stations and stores.

E-bay recently started their very own gift cards, for sale through 10,000 grocery stores. But you can also get them on-line to e mail to anyone you choose for amounts under $500. But I have a question: With tens of billions of gift cards sold each year, stores get a commission for selling them. What? You thought they sell them to help you out? Nice try. So when we buy the directly from the retailer how come we don’t get a discount?

There is now something called a virtual or disposable credit card. It’s a one-time use card. You get a temporary number that’s linked to your real credit card number and it’s governed by your same cardholder agreement. But it makes nervous people happy as they can use it on-line, and with merchants they don’t really trust. Right now they’re issued by Bank of America and Citigroup. But I never understand why so many people spend all that energy worrying about this kind of stuff. Repeat after me: By law, you are NEVER on the hook for any fraudulent charges on your account. Relax…

An RBC Survey last fall reported that about half of all new mortgages made in Canada are 40-year terms. Great news for lenders – probably the worst news for those who actually do it. It’s financial suicide: On a $200,000 mortgage the payment might drop $160 a month, but you’re adding $173,000 of interest. I can think of at least five or six ways to make a 25-year mortgage work, instead of this, and it’s not a stretch to figure there are hundreds of things I’d rather do with $173,000 interest than gifting it to one of the mega banks!

Last month, Visa issued a $19 billion public offering. That was one of the biggest private offerings ever, and on March 18th, the first day of trading, the shares opened at $44. By the end of that day, they were at $56. Debt really does pay if you’re a shareholder, but NOT if you’re broke and paying the interest on the other end of the food chain!