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The Great Gift Card Scare of 2008

Wednesday, 3 Dec 2008 | 9:29 PM ET

The gift card is the perennial last-minute favorite during the holidays. We’re buying them in droves like usual this year (two-thirds of Americans plan on picking one up, says Consumer Reports), but for the first time we’re not 100% sure our cards will be honored.

Alerting Consumers
What you need to know about gift cards, with CNBC's Carmen Wong Ulrich.

There’s even an email being sent around telling consumers that certain stores are planning to close and their gift cards “will be worthless January 1.”

One of those companies is Circuit City, which told New York City'sWNBC that its gift cards can still be redeemed at their full value while the company works through bankruptcy proceedings. Ann Taylor, another merchant on the list, said that while its closing some “underperforming stores,” the company continues to be on strong footing and will honor all gift cards. Linens-N-Things, which is in the process of going out of business, no longer honors gift cards online.

Carmen calls it the ‘great gift card scare,’ but it doesn’t have to be. Tod Marks, senior editor at Consumer Reports Magazine, says that gift card redemption is a case-by-case situation for companies in bankruptcy. The best thing to do is to simply not purchase cards from companies on the brink.

Even if the store you’re buying from is as financially sound as they come, it’s still in your best interest to check the fine print, Marks says. Look for expiration dates, transaction fees and inactivity fees that unfairly diminish the value of the card over time. And remember that store-issued cards tend to have far less strings like these attached than gift cards issued by credit-card companies. Those should be avoided whenever possible, according to Marks.