But as Ronald Lippman, a retiree living in Albany, N.Y., discovered, a gift card's value can also vanish.

Last December Lippman's sister-in-law gave him a $50 gift card from Charter One Bank. When he tried to use it in August, he found out the card had expired in June--just six months after it was purchased. A customer service representative explained that the bank had assessed him $10 a month for the two months it sat around unused after the expiration date. Lippman could get a refund check--but only if he paid an additional $10 fee--shrinking the original $50 gift to $20. "The thing that surprised me were the fees," Lippman says.

He isn't the only one shocked to find out that expiration dates and nonuse (or dormancy) fees and other charges can limit a gift card's usefulness and drain away its value. "Consumers feel that they have been taken advantage of because they did not expect a fee," says William McCracken, chief executive officer of Synergistics Research Corp., an Atlanta market-research firm. According to its May survey, 63 percent of respondents who had purchased or intended to purchase gift cards said they were not aware that some carry fees.

To make matters more confusing, the fees are not universal. Each card issuer plays by a different set of rules. Not all cards carry all fees, and those that do don't charge for the same services. To sort out the cards and their fees, we asked Maryland's Montgomery County Division of Consumer Affairs to update a study of gift cards it had completed for last year's holiday season.

CARD GAMES

Gift cards have come a long way in the nine years since the earliest ones were introduced as replacements for paper gift certificates. Last year consumers spent an estimated $45 billion on gift cards, according to TowerGroup, a Needham, Mass., research and consulting firm owned by MasterCard International. Sales are expected to grow 20 percent this year.

The cards are turning up everywhere. You can find them at supermarkets; just check the greeting-card aisle or checkout stations at Publix supermarkets, where you can pick up the Publix gift card as well as cards for Home Depot, Foot Locker, and other retailers. Barnes & Noble, Gap, and Wal-Mart sell their own store-branded cards. And for that mall-trolling teenager, you can even purchase cards good for use at any retail store in a particular mall.

Gift cards offer a range of conveniences: Many issuers let you view your transaction history and check your balance. Some will replace lost or stolen cards. Others convert currency, for those times when you get the urge to shop at one of your favorite stores while out of the country.

Not all gift cards are alike, however. They come in two flavors: those issued by retailers and those issued by financial institutions.

Retail cards. Merchants saw an obvious advantage to issuing gift cards: boosting store sales. But many also tacked on expiration dates and nonuse fees that emptied the card of value before state escheatment laws applied. Escheatment laws require that organizations turn over unclaimed assets to the state after a specified period. Complying with the law is a nightmare for retailers because there are 35 different escheatment laws in 50 states, and the law that applies is usually the one where the consumer lives--not where the store does business.

So when the Montgomery County Division of Consumer Affairs looked at gift cards in the fall of 2003, it found that 10 percent (three) of the cards had expiration dates that ranged from two to three years and 50 percent of the cards analyzed charged nonuse fees--typically $1 to $2.10 per month. The fee kicked in after the card remained unused for 12 months to 2 years--or after the expiration at a specified date. Worse, 44 percent of the cards that had fees or expiration dates failed to disclose the restrictions on the retailer's Web site and in the store.

Customers complained. As a result, there were more than 80 pieces of legislation proposed to govern fees and expiration dates. Several states, including California, Connecticut, Hawaii, and New Hampshire, have already enacted laws to limit fees or expiration dates on gift cards.

Fortunately, consumers will not have to wait for laws to be passed to see improvements. Many merchants have already responded to pending legislation and customer dissatisfaction by eliminating fees. In this year's Montgomery County survey, only 30 percent of retailers charged dormancy fees. While the survey was under way, CompUSA and Hollywood Video representatives said the companies don't impose fees, even though the cards and Web sites said they do.

Bank cards. In 2002 and 2003 financial institutions started promoting gift cards with the MasterCard and Visa logos; American Express and Discover issued their own gift cards.

At first blush, the new offerings seemed even better than the store cards. First, some of the cards may be used wherever the credit-card brand is accepted. Others allow you to withdraw cash from an ATM. Some cards even give you the option to "reload" or add additional value to the card at a later date.

But you have to pony up fees for many of those features. "Bank-issued gift cards are financial instruments, and, as with all financial products, the issuer makes money on fees," wrote John Gould, a director at the TowerGroup, in a study of gift cards. Industry insiders say those fees are the only source of revenue for the bank, whereas retailers make money from the cards simply when you spend at their stores.

The four bank cards examined this year by the Montgomery County Division of Consumer Affairs were chock-full of fees. Not only did the gift-giver pay a stiff fee for acquiring the card (the minimum was $3.95), but some cards also ladled on fees for replacing a lost card, withdrawing money from an ATM, and monthly maintenance. And if you ask for the remaining cash due you upon expiration, you could be hit by an administrative fee or check processing fee that rises as high as $15.

WHAT TO DO

Here are the steps to take to keep the gift you give or receive from disappearing into a bank's or merchant's pocket or your state's escheatment coffers:

Check on expiration dates and fees. Whether you purchase the card for someone else or receive one as a gift, make sure you know what the catches or fees are. Usually you can find them on the card itself, on an accompanying sleeve, or on the issuer's Web site. If you are the gift-giver and think the rules are too restrictive, don't purchase the card.

Stick to store cards rather than bank cards if you are buying. You'll pay no up-front fee for a store card, and of the 30 store and restaurant cards examined, only seven had nonuse fees and one an expiration date.

If you receive a bank card, use it immediately. Delaying gratification in this case only costs you money. Spend the money before the value erodes.

Consider a cash gift. It is universally appreciated, is accepted everywhere, never expires, and carries no extra fees.

Source: www.consumerreports.org