Where Does Unused Gift Card Money Go?

The volume of gift cards sold in this country is well over $80 Billion and 10% of that is unused. Most of us can't imagine paying for something and then leaving the shop without it. Yet that is basically what happens in the case of unused gift card money. This usually happens once the balance available on a gift card is such that it is difficult to find items a buyer wants that fit in that amount.

Its usually easier to just let it go. But these small amounts add up and before the current financial crisis hit us, it was estimated that nearly $40 billion in gift cards would be sold during the holiday season. That's just about $4 Billion that will be unused in a period of a few months.

What happens to this unused money is interesting. Although states try to collect the unused gift card money by using what they call dormancy laws - that is laws that give the state possession of money lying unused and unclaimed for a fixed period of time. In New York it is 5 years. But since laws vary from state to state, retailers are usually able to find a way of keeping the money.

Although retailers claim that they would rather have customers coming in their stores and using their gift cards and perhaps spending even more, the fact remains that the unused amounts, known as "breakage", are gratefully accepted.

What companies do is set up gift card subsidiary company in states that allow them to keep the breakage, irrespective of where the sales transaction may take place. A retailer located in Delaware, which has stringent breakage laws, will set up the subsidiary or Giftco in states like Florida, Virginia, Ohio and Washington, where laws permit the companies to retain unused gift card money.

Best Buy, a Minn. electronics retailer, added $19 Million to its 2005 profits on account of unused gift card money.

So if you are wondering where the unused money on your gift card goes, the answer is that you have given a present to the retailer!