U.S. News

The Good and Bad: Bankrate's 2009 Gift Card Study

Ellen Cannon, Bankrate.com

Experts believe 2009 gift card purchases will bounce back from last holiday season, when spending on the cards decreased to $24.9 billion from $26.3 billion in 2007, according to the National Retail Federation.

Photo By: Arvind Grover

However, there's some disagreement about how much spending on gift cards will rise.

"Consumers are buying gift cards that have less value -- the average value of the cards is down by $6, to $46 from $52," says Dave Sievers, principal and Consumer Products and Retail Practice lead at Archstone Consulting in Stamford, Conn. "Generally, they're buying cards that can be redeemed for necessities and practical purchases -- such as Walmart, Target, supermarkets, restaurants -- versus discretionary items."

The 24th Annual Holiday Survey conducted by Deloitte indicated that gift cards will be the No. 1 present for the sixth consecutive year, with 64 percent of consumers saying they'll give or receive them. Deloitte's survey says average spending will increase to $35, up from $28 a year ago.

"I don't think gift card spending will be down at all," says Dan Horne, a marketing professor at Providence College in Providence, R.I., and an expert on the gift card business. "People want to give recipients something they can really use, and they don't want to make a mistake. Gift cards will be an alternative."

Regardless of whether spending per card is up or down, necessities, not luxuries, will be what gift givers spend their money on.

With that trend in mind, Bankrate.com added five new cards to our annual study of gift cards. These are iTunes, Starbucks and three of the major restaurant chains: Darden (Red Lobster, Olive Garden, Longhorn Steakhouse, Seasons 52, Bahama Breeze, the Capital Grille), OSI Restaurant Partners (Outback, Carrabba's, Bonefish Grill, Fleming's, Roy's) and Yum Brands (KFC, Long John Silver's, Pizza Hut, Taco Bell).

Once again, we looked at the terms on gift cards from major retailers, including Amazon and eBay, and those from American Express, Discover, MasterCard and Visa, which are known as open-loop cards.

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In September, American Express announced it would no longer charge the $2 monthly service fee after 12 months -- and that change is retroactive to old cards, too. However, our survey found that Discover, MasterCard and Visa still charge a $2.50 monthly maintenance fee after 12 consecutive months of inactivity.

"This year, the gift card market is very competitive and we're seeing discounting," says Horne. "American Express did away with its fees. To do well, you have to innovate. Competition drives consumer benefit. "

All of the open-loop gift cards, which can be used anywhere, have a "valid thru" date now, which is printed on the front of the cards. Previously, cards expired after 24 months. This valid thru date is not an expiration date. However, once the valid thru date arrives, the cardholder must request a new card with a new valid thru date in order to keep using it.

Next: Get in on the CARD act...