Here's What Happens to Your Unused Gift Card Balance

Gift cards catch their share of flack from people who think they are owed deeply personal, thoughtful gifts from anyone in their life who may graciously decide to bestow one upon them. Despite these entitled naysayers, however, those little pieces of plastic money have remained the most-requested holiday gift for the past 13 years, according to the National Retail Federation.

But while Americans dropped an estimated $171B on gift cards in 2019, not all of them will get used. At any given time, 10 to 19 percent of gift card balances remain unredeemed, so what happens to the unused funds left over?

According to the Hustle, the answer is more or less what you would expect: the company nets your unused gift card balance at 100 percent profit.

It’s not quite that simple, though. Most big companies use a system called accrual accounting, meaning money spent on gift cards is not tallied as revenue until it is redeemed. Until then, companies have to plan for the possibility that the gift card could be redeemed at some point in the future. After a certain amount of time, however, the law permits companies to turn these liabilities into “breakage income,” or the gift card money the company estimates will never be redeemed.

But while companies stand to make a sizable profit off of unredeemed gift cards, retailers claim they make more when those cards are actually spent. That’s because most gift card holders end up spending more than the amount on the card. And if they spend less? That makes for return customers who will increase a store’s foot traffic metrics when they come back to use up the rest of the card. Gift cards also provide an illusory safety net for normally frugal shoppers who often find themselves more willing to purchase full-priced items rather than sifting through the clearance rack.

Essentially, the retailer profits whether you use your gift card or not, and you only benefit if you do. So take this as a reminder to go spend those little pieces of plastic for all they’re worth. Don’t let big retail profit off your laziness.

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