Whether Christmas shopping for a friend, family member or co-worker, you can't go wrong with a gift card from a major big-box retailer or merchant. Gift cards are practical. Gift cards remove the guesswork and anxiety of finding the perfect present for a difficult-to-shop-for recipient. According to a National Retail Federation survey, 59% of respondents say a gift card tops their Christmas wish list.

This perhaps explains why Americans spent approximately $163 billion on gift cards in 2019, a figure that is forecast to reach $221 billion by 2024. What's even more staggering is the amount of money sitting on gift cards that goes unspent. Accounting insights firm Audit Analytics reviewed SEC filings of public companies and estimated of 2% to 4% of gift card sums are never redeemed. In industry parlance, this is known as breakage, and in some cases it can be extra income for the gift card issuer.

Gift cards shouldn't be a free gift for the retailer. If you are thinking about giving a gift card to friend or loved one, here are some tips to ensure your gift doesn't go to waste.

Key Takeaways

  • About $163 billion was spent on gift cards in 2019, and this figure is expected to reach $221 billion by 2024.
  • An estimated 2% to 4% of gift card sums are never spent. This is known as breakage, and it can be extra income for retailers.
  • If you intend to give a gift card to someone, merchants that have universal appeal will help ensure balances will get spent.
  • In states such as New York, unspent gift card sums are turned over to the state government under abandoned property laws.

Gift Card Basics

Start by giving a gift card that is likely to be spent. For example, a prepaid credit card from VISA (V) can be used anywhere Visa is accepted and is a good as gifting cash. As stocking stuffers go, a prepaid credit card can hardly disappoint. For this reason, a gift card from Amazon (AMZN) would likely delight your recipient as well. What Visa offers in terms of purchasing versatility, Amazon matches with broad merchandise selection.

Even gift cards from Starbucks (SBUX) or Apple (AAPL)perfect for the holiday office exchangeare likely to be spent. Sticking to popular merchants reduces the chances a gift card will go unused.

Trade in Gift Cards 

If you receive a gift card from a retailer that you're not crazy about, you might be able to sell it for cash or exchange it for a card from another merchant. There are dozens of websites that facilitate the trade of unused gift card sums. Cardpool claims to offer up to 92% cashback on gift cards. Sellers receive payment in the form of cash or an Amazon gift card. Likewise, CardCash also offers up to 92% cashback in the form of cash or trade. Raise says it has facilitated $1.6 billion in transactions and saved gift card buyers more than $170 million.

Give to a Cause

In the spirit of giving, perhaps you would like to donate your unwanted gift card to charity instead. There is no shortage of worthy causes that can redirect unused funds to those in need. St. Jude Children's Hospital, which treats childhood cancer and other life-threatening diseases, accepts gift card donations.

CharityChoice allows you to choose from more than 1,000 charitable recipients. The website is operated by Special Kids Fund, a 501(c)3 organization. When you donate a gift card, not only do the funds go to a deserving cause, the donation might be tax-deductible if you itemize your deductions.

Unused Gift Card Fate

Forgotten gift cards can be a boon to issuing merchants. Under the federal Credit Card Accountability Responsibility and Disclosure Act of 2009, retail gift cards are allowed to charge inactivity fees after a card has been dormant for at least 12 months. This can whittle away at unspent balances. In addition, gift cards can expire five years after purchase. The terms and conditions for the card must disclose this.

However, unspent gift card balances won't necessarily return to the merchant. Depending on where you live, your state government can take possession of unspent gift card money under your state's escheat laws. At the end of 2019, the New York State Comptroller announced it had received $13 million worth of dormant gift cards. It received $12 million the year prior. Some states exclude gift cards and gift certificates from escheat laws, while others restrict or prohibit the use of expiration dates and inactivity fees.

The Bottom Line

Gift cards are big business for retailers and merchants. Know the options when it comes to gift cards and ensure that any hard-earned cash goes to a person that will appreciate it. If you find yourself in possession of an unused or unwanted gift card, there are online venues to redeem the card for cash or, better yet, donate the sum to a charitable cause. Finally, if you don't spend your gift card cash in time, know that the money may be turned over to your state government.