Consumer Reports: Gift Cards Poor Choice for Gifts This Year

Find out why Consumer Reports says gift cards an even poorer choice this year.

Gift cards may seem like the perfect present. And sales spike this time of year. But Consumer Reports, which has had reservations about gift cards in the past, says recent bankruptcies have made gift cards an even poorer choice this year.

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," said 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."

Houston has filed a claim in bankruptcy court, but he's not optimistic.

"Should be two or three dollars if I'm lucky," Houston said.

"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," Kleman said.

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," Kleman said.

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.