Considering a gift card purchase over the holidays? Buy directly from a retailer if you want to save on fees.

Gift card purchases are projected to reach an all-time high this holiday season, according to Archstone Consulting in Stamford, Conn. Its September survey predicted total sales of $35 billion this year, an increase of 25 percent over last year's gift card sales. A study by Comdata Stored Value Solutions projected that in the 2007 holiday season, the average gift card buyer will spend $203 on cards, a $17 increase from 2006.

Teens have embraced gift cards faster than any other segment. According to the Teen Gift Card Survey commissioned by Comdata, 98 percent of teens between the ages of 14 and 19 have either bought or received a gift card.

Bankrate's third annual gift card survey reveals that gift cards purchased directly from retailers carry no fees, while cards from the big four credit card issuers and major shopping mall operators come with fees and expiration dates.

Bankrate surveyed American Express, Discover, MasterCard and Visa, along with top nationwide retailers and the six largest shopping mall operators on their plastic gift cards and electronic cards. Of the 31 issuers of gift cards surveyed, only 12 offer both plastic and electronic cards.

For all consumers, the average amount of each gift card was $53, up from $46 the previous year. So don't look for gift card growth to slow down anytime soon.

Why so popular?
The primary driver for the growth of gift cards is that a gift card allows a recipient to choose the gift they really want.

"The desire of the gift giver is to help the recipient," says Tim Sloane, director of the Debit Advisory Service of Mercator Advisory Group in Waltham, Mass. "They think, 'When I give someone the gift card, I hope they'll use it on something they really want.' If they decide to buy something that they couldn't have and now the gift card makes it attainable, that's good too. As a recipient, I would remember what it was that helped me get that gift. Satisfaction with gift cards is great."

Dan Horne, a marketing professor at Providence College and an expert on the gift card market concurs: "Consumers look at a $50 gift card and think, 'I can get a $75 item and it only costs me $25.' Recipients are getting cool things for a cheap price. And the giver thinks, 'I gave you the means to buy that thing.' The perceived value is very strong."

Targeting niches
Now that gift cards are widely accepted, the range of gift cards available is growing.

"The market has become so mature that there are niche products so that we can target our gifts to appropriate people," says Horne. "That's what leads to high rates of consumer satisfaction."

American Express's "Especially for ..." program, for example, has cards for age groups, occasions and hobbies like dining and movie-going. Cardholders are eligible for various special offers from select retailers when they use an Especially for ... gift card.

"We are focusing on ways to make the gift of the American Express Gift Card more personal and special, and that has led us to introduce a number of themed gift cards for specific recipients -- such as kids and teens -- and occasions -- like wedding, birthdays or simply a 'thank you' for doing a great job," says Robert Sherman, a spokesman for American Express. "Our special offers program provides a way for gift card givers to give more than the face amount of the gift card. The recipient can choose from a range of discounts and special offers at participating merchants -- such as a free game of bowling, a free dessert with dinner or up to 20 percent off the price of merchandise."

Read the fine print
Despite the wild popularity of gift cards, consumers still need to be aware of the terms and conditions of the cards. The Federal Trade Commission oversees gift cards and requires all gift cards to include a printed guide to terms and conditions with the card. This is fine for the buyer, but it's the recipient who needs to know if and when the card expires, if there are fees for checking the balance or any other rules. So if you're giving a gift card, be sure you include the terms and conditions.

The distinction between cards with fees and expiration and those without them depends on the issuer. The retailers' gift cards -- known as "closed-loop" cards because they can be used only at that retailer -- carry no fees. Of the cards we surveyed, only Bloomingdale's and Macy's cards have expiration dates.

Cards that can be used in many places -- known as "open-loop" cards -- have fees per card and are valid until an expiration date, after which monthly deductions are made until the balance is zero. The open-loop cards are from American Express, Discover, MasterCard and Visa and the six largest operators of shopping malls.

Fees acceptable
While these open-loop gift cards cost from $2.95 to $6.95 to purchase and have expiration restrictions, they can be used anywhere those credit cards are accepted. Consumers don't seem to be deterred by the fee to purchase these use-anywhere gift cards: The open-loop gift card business grew by 121 percent in 2006, to almost $3 billion, according to Mercator Advisory Group. And research suggests that growth in 2007 will continue.

"People realize that consumers vote with their wallets," says Horne. "If they view it as worth the $5 extra, then they do it. There are alternative products, but consumers are saying, 'I don't mind paying the fees because I think the value I'm getting is fair.'"

So if Auntie Em in Kansas wanted to send a gift card to her niece Dorothy in New York City, a branded gift card would be the way to go.

E-cards have drawbacks
Nearly all gifts cards have shipping and handling costs, which vary with the delivery time frame. You can avoid those fees by purchasing an electronic gift card, but only 12 of the 31 retailers Bankrate surveyed offer e-cards.

If you want to go the e-card route, know that there's a drawback: In most instances, an e-card can be redeemed only online, not in stores. For example, Barnes & Noble, Bloomingdale's and Costco allow you to buy electronic gift cards online, but those e-cards can only be used online. The exceptions are Neiman Marcus, Nordstrom, J.C. Penney and Saks Fifth Avenue; their plastic and e-cards can be used online, in stores and even for catalog sales.

State laws vary
Many states are adding gift cards to their consumer protection laws. Rules having to do with expiration dates and maintenance fees are being amended. Several states recently passed laws that don't allow cards to expire. For example, in California, Florida, Maryland, Massachusetts and Nevada, cards cannot expire. Other states put limits on expiration; for example, cards can't expire within the first two years of issuance.

"Clearly there is a groundswell of support to get rid of expiration dates," says Horne. "It's an easy issue for politicians. Merchants think it's better to get customers into the store, spend more than the value of the cards and become loyal customers, so they did away with their fees and expiration dates."

But Horne says that those benefits don't apply to the open-loop cards. "Their revenue streams have to come from somewhere else -- like the upfront fees."

To find out how your state treats gift cards, check with your state's consumer protection department.

For the full results of the Bankrate gift card study, see"2007 Gift Card Study comparison chart" for plastic gift cards and "Electronic gift certificates limited" for electronic gift certificates.

Note: In previous years, Bankrate surveyed the top 100 retailers, which included the major grocery store chains and drugstores. This year we surveyed retailers including department store chains and shopping malls. We did not include grocery stores and drugstores.