I received an email from a reader called Jason last night asking for my thoughts on Charity Choice gift cards. Here’s his question:
I was wondering if you could do a post on the Charity Choice gift cards. I noticed that you made reference to them in a recent post on “Giving Good” gift cards. Given that Charity Choice GCs are often on sale for ~20% off/back, they seemed too good to be true, and indeed I think they are.
Looking into the details on their FAQs, they say “In some cases, a larger administrative fee may be required; depending upon how the card is purchased and the costs involved, e.g., affiliate marketing.” That makes it sound like where, say, MyGiftCardsPlus gives you 20% back, that 20% (and likely more) is just deducted from the amount given to the actual charity.
Buyers of for-profit companies’ gift cards are used to them absorbing the costs, but it’s different when the intention is to actually maximum the money given to a charity.
What are your thoughts? Do you read the terms differently?
I’d never looked too deeply into Charity Choice gift cards beyond seeing sales for them at times such as the 20% cashback offer on MyGiftCardsPlus that Jason mentioned. I’d figured there might’ve been a catch, but hadn’t taken the time to look until reading his email.
The way these work is that you buy a gift card and can then use that value to donate to a charity. There are apparently over 250 charities and more than 750 local causes you can donate to. If you buy a Charity Choice gift card as a gift for someone else, you can enter a suggested charity for them to support, but the recipient can choose for themselves which charity they want to donate the value to. Charity Choice allows you/the recipient to allocate the value of the gift card to up to three charitable causes.
Your purchase of a Charity Choice gift card is fully tax-deductible immediately as the company selling these gift cards is a charitable organization and therefore has 501(c)(3) status.
So far, so good. It seemingly gets even better if you can buy these gift cards at a discount or with rewards, such as 20% cashback via MyGiftCardsPlus. You save money on the gift card, get a tax deduction and the charity (or charities) you select get the full value of the gift card. (n.b. I’m not sure how the tax deduction works with MyGiftCardsPlus seeing as you buy the gift card at full value and get 20% back, effectively as a cashback rebate. I therefore don’t know if the tax deduction is based on the 100% value that you paid or the 80% after the cashback has been accounted for).
The problem is that the charity (or charities) don’t get the full value of the gift card. You can find the website for Charity Choice gift cards here (note that it’s not CharityChoice.com). Their FAQs page does a pretty good job of providing answers to any questions you might have. With regards to how much is passed on to charities, here’s what they have to say:
How much of my donation, once redeemed, is passed on to the designated charity?
We will pass on the donation to the designated charity; deducting $0.50 per card + 5% administrative fee and 3% credit card processing – towards management of this nonprofit fundraising program, with the remainder to benefit special needs children. In some cases, a larger administrative fee may be required; depending upon how the card is purchased and the costs involved, e.g., affiliate marketing.
Rewards program cards have a total fee of 10% (In some situations, marketing costs warrant an adjustment in the fee structure). Purchase made directly on our website are in the 5% category. The full amount of your donation is immediately 100% tax deductible, as a donation to our 501(c)(3) fund, even before the funds are actually allocated to the chosen charity (allocations are sent on a quarterly basis, usually 4-6 weeks following the close). Privacy is protected, the charities are not given any information about donors, nor recipients (unless opted-in).
Please note that unlike for-profit websites and charity portals, www.charitygiftcertificates.org is run by a charitable organization with a distinct cause, providing for special needs children; so that using our service is worthwhile all around!
Let’s say you bought a $100 Charity Choice gift card directly from them. The fees would amount to $8.50, meaning the charity you select only sees $91.50 of the money. In that scenario, you’d be better off donating directly to the charity because even if they have to pay credit card processing fees themselves, it’s not going to cost them ~8.5%.
Buying Charity Choice gift cards at a discount or with higher rewards doesn’t seem like it’s going to be much better. That’s because Charity Choice charges additional fees for gift cards purchased at a discount to compensate for the discount given. If the same fees were charged, it would be great. Let’s say you bought a $100 gift card for $80. The charity would still get $91.50, but you only paid $80 which means the charity would effectively be receiving a 14.4% bonus.
Note though that Charity Choice states that in some cases “a larger administrative fee may be required; depending upon how the card is purchased and the costs involved, e.g., affiliate marketing.” In the case of MyGiftCardsPlus offering 20% cashback, that makes it sound like an administrative fee of 20% could be deducted, thereby making the charity of your choosing worse off than by donating directly.
I’m therefore struggling to see how Charity Choice gift cards are a good thing, as the fees charged look like in every instance they’d be higher than if you were to donate the money directly.