Risky Gift Cards

November 17, 2008 12:00:00 AM PST
Gift cards may seem like the perfect present. When John Houston returned a gift to Sharper Image earlier this year, the store gave him a merchandise certificate for 216 dollars. Not long afterward, sharper image filed for bankruptcy and now won't accept Houston's merchandise certificate ? or any of its gift cards.

"I don't think I'll ever see my money. It's pretty much gone," says Houston.

Consumer Reports editor, Kim Kleman, says with more companies in financial trouble, there are new risks with gift cards. "Companies rarely put aside money to pay off gift cards in case their business fails. So gift card holders have to stand in line in bankruptcy court behind lots of other creditors," says Kleman.

Houston has filed a claim in bankruptcy court, but he's not optimistic. "Should be two or three dollars if I'm lucky," says Houston.

Kleman says "You obviously don't want to buy a gift card from a business in trouble. But you can't always tell. We heard that Sharper Image was selling gift cards right up until it filed for bankruptcy."

Even with financially healthy retailers, Consumer Reports says gift cards don't make a great gift. "Our survey has shown 25 percent of gift cards go unused each year. And they can carry fees and expiration dates. So you're better off giving cash."

And if you've got a gift card, Consumer Reports says spend it -all of it - right away so you don't get stuck with a worthless card.

Consumer Reports says Sharper Image gift card holders are currently being offered a 25-percent discount at Brookstone stores. But Brookstone says the offer is limited and will apply to merchandise purchased in stores only - and not to anything bought online.

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