How much will a gift card really cost this Christmas?

Sally McMullen 24 November 2016

Thinking of buying someone a gift card using your credit card? Think again.

More than half of Australians (55%) are planning to buy and give gift cards this Christmas, according to a recent finder.com.au survey, and we'll spend an average of $308 buying them. They're fast and convenient gift ideas, but watch out for one potential trap. If you use a credit card to purchase your gift card, you could end up racking up some unexpected fees.

Amongst Aussies who are planning to buy gift cards this year, 27.61% plan to pay for them with a credit card. When you use a credit card to buy a gift card, it’s considered as a cash advance, not a regular purchase. So, just as if you were using your credit card for ATM withdrawals, you’ll be charged a cash advance fee, typically from 2% to 4%. As well, you'll start being charged the cash advance interest rate on that sum immediately. This is usually the highest rate on the card, and can be as high as 20% to 22% per annum.

If you charged $308 worth of gift cards to your credit card at an interest rate of 22% and a cash advance fee of 2% that started charging daily, you'd immediately pay a cash advance fee of $6.61. You also won't earn any rewards or bonus points, since it's considered a cash transaction, not a purchase.

Assuming you didn't pay off the card until next Christmas, you would accrue $68.17 in interest. At that point, $308 in gift cards has actually cost you $382.78.

In this case, it would make more sense to pay for the gift card with a debit card or cash. Gift cards can be a convenient gift option, but make sure you don’t pay over the odds.

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Image: Shutterstock.

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