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The best and worst ways to use gift cards

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(Read caption) A gift card kiosk in New York.

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Annika sent in this great idea that I wanted to discuss in a post of its own:

I agree that gift cards aren’t a good idea for gifts, but I do find them pretty useful. We have a membership at Sam’s Club and they sell gift cards at a discount. If I know I’m going to be going out to eat or using one of those services, I just go to Sam’s Club, buy the discounted gift card, and then use that to pay for the meal.

Annika’s idea is a very good one. This is a great way to tack a little additional discount onto quite a few purchases thanks to a warehouse membership. It’s worth noting that this works at both Costco and Sam’s Club, the two warehouse clubs reasonably near our home.

Annika sent this idea in a few months ago, and since then we’ve used this idea three times. We bought a four pack of iTunes cards at a roughly 8% discount off of face value, a Granite City Food and Brewery card for 20% off of face value, and a Starbucks card for about 12% off of face value.

Each time, we bought the card in advance of a planned purchase. We were already planning on spending money at the business represented by each card before we bought the gift card. In two of the three instances, we used the full value of the card in a single day; in the third instance, the iTunes cards, we had extra cards and the remaining value stuck around as credit on our Apple account.

In the past, I had been able to save a bit more than this using online gift card brokers (which I’ve mentioned before), but there were two notable drawbacks. One, we had to wait several days for the card to arrive. Two, there was some additional risk of receiving a card that had been used (there’s always a slight risk when buying a gift card, but the chance increases with a secondhand card).

Given those drawbacks, I’m quite happy to save a little less at the local warehouse club in exchange for the convenience and slight additional security.

However, everything wasn’t perfect with the warehouse club discount, either.

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For starters, many of the cards there were barely discounted. Some of the cards had a face value of $25 with a cost of $24.96 or $24.88. At that rate, it’s essentially not worth it to pick up the card for such use unless you are absolutely sure you’re going to use the full balance of the card. Even then, the hassle of a faulty gift card is likely not worth the $0.04 or $0.12 you’d save in that situation.

Another problem is that it requires a separate stop if you’re going out. Let’s say you’re thinking about going out to eat at, say, Red Lobster (I’m simply naming a restaurant that I know has gift cards at Sam’s Club). In order to maximize the value of this “gift card shuffle,” you either have to know you’re going to eat there prior to a Sam’s Club visit or you have to make an extra stop when you’re on your way to the restaurant.

I don’t know about you guys, but on the occasions we go out to eat as a family, our choice as to where to eat is somewhat impulsive. We don’t plan to go to, say, Red Lobster several days in advance. We might have it penciled in to go out to eat one night as a family, but unless the occasion is incredibly special (in which case we’re likely eating at a local restaurant with reservations, like this one), we’re likely not making that decision until we’re ready to go. Buying a gift card locks that decision.

In summary, buying a gift card in this way only makes sense if you’re receiving a notable discount off of the face value of the card. If you’re not receiving that discount, the lack of flexibility and other risks of the card make the discount not worth it.

What about buying a discounted gift card “just in case”? My two oldest children, for example, bothlove to eat at the Olive Garden. Something about the Olive Garden is really appealing to them and it’s one of the places they’ll request first if we give them the opportunity for input into our dining decision. Wouldn’t it make sense to keep a discounted Olive Garden card on hand because we’ll inevitably eat there sometime in the next year or two? The same logic applies for something like Starbucks.

In those cases, I’d tend to agree for the most part. The only drawback I can see is whether or not such cards would encourage you to spend more than you otherwise would. For example, does the presence of a Starbucks gift card in your wallet increase your chance of going to Starbucks? If you have good control over your impulses, then having a discounted card in your wallet could indeed save you money over the long haul.

Our approach to this is to buy such cards out of our “dining out” line item (or other appropriate lines) on our budget. Most months, we come in quite a bit under our target in terms of how much we spend on dining out, so spending some of the excess on a card like this can end up saving us even more money by shifting part of the expense for a pricy month (like a month where we do a lot of traveling) to a less expensive month (like, say, January, where we likely won’t eat out at all).

As always, discounts are all over the place if you look for them, but they’re not really discounts unless you use them wisely. In this case, it’s worth it to use these cards if you know you’re going to use them, but remember that they’re not really saving you money if they just encourage you to spend in ways you would not have done otherwise.

The post The Gift Card Shuffle appeared first on The Simple Dollar.

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