Barry Ritholtz doesn't like gift cards:
Nothing says “I am both thoughtless and inconveniencing” like a gift card. They let the recipient know that you couldn’t be bothered actually picking out a present, so here is a cash equivalent — only so much less convenient than the crisp paper kind of cash. And, you can only spend it in one place.
Now much do gift cards suck? Each year, $5 billion in gift cards go unclaimed, forgotten about or lost. That’s how much people value them — they throw away $5 effen billion dollars worth every year!
My heart is with Barry. But my brain says different: I'll bet $5 billion is peanuts compared to the value of actual physical Christmas gifts that are essentially thrown away every year. How many sweaters/books/vases/novelties/etc. have you gotten over the years that basically got tossed in a drawer never to see the light of day again?
Barry goes on to provide a couple of further pieces of advice, one sound and one not. First, the sound one: "If you must get a gift card, then get them a Gift card they will actually use. Maybe they have a favorite clothing store or gadget shop....If your daughter is a Starbucks junkie, then at least you know the gift will be used — and appreciated." I have friends and relatives who love gift cards. And you know, if that's what they want, then why not get them a gift card? It's their gift, after all. But yes: make sure it's to someplace they like to shop at, someplace where they'd enjoy having some "free" money to go on a little binge. It's fun!
And then the unsound advice: "Even better still: Get them a prepaid credit card. All the major credit card firms (Amex, Visa, Master Card) let you buy prepaid CC as a gift card. These can be used anywhere credit cards are accepted. Its practically cash, and far more flexible than a Abercrombie or a Sears gift card." This is bad advice — for now. The Fed has proposed new rules regulating expiration dates and limiting "maintenance" and "dormancy" fees on gift cards, but they haven't gone into effect yet. Bank gift cards tend to be riddled with these things. They're even worse than retail gift cards. AmEx is an exception, but for now I'd avoid Visa and Mastercard gift cards.
I'd add one more thing: some people have a hard time thinking of presents to suggest to their friends and relatives. This makes it hard to shop for them, and they feel guilty about this. So they suggest a gift card instead: it's something they can use, and it relieves the pressure of desperately trying to dream up a Christmas list even though they don't have a lot of good ideas on tap. If you know someone like that, give 'em a break. Get them a gift card and stop bugging them. Life will be happier all around.