Should you buy American Express gift cards now that the issuer has dropped its monthly inactivity fee?

You may be asking yourself that question in light of the issuer’s recent announcement that it was dropping the $2 monthly fee it had charged on its gifts cards, beginning a year after purchase. The decision, which took effect September 30, applies to new Amex cards and, incredibly, to existing ones, too. The issuer already had ditched the $5.95 fee it charged to replace a lost or stolen card.

“This is the [response to] feedback from customers, that having fees was a frustration for them,” American Express spokeswoman Marina Norville said. “We do hope other issuers will follow suit. It is the right thing to do for customers.”

So-called gift card dormancy, or inactivity, fees are infamous because they gradually can zap a card’s value while it’s sitting in your wallet or drawer, perhaps forgotten. Some states limit such fees, and in August 2010 the new Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 will begin prohibit charging those fees for gift cards that are less than one year old (something Amex wasn’t doing anyway).

The American Express decision is welcome news, especially for those already carrying an Amex gift card. But don’t think the elimination of post-purchase fees means Amex gift cards now are free of downsides.

For one, the dormancy fee may be gone, but not the $3.95 to $6.95 fee to buy the card in the first place. That’s a lot more than the cost of writing a check or giving cash. 

And Amex gift cards still come with fine-print gotchas. Want to convert the balance to cash? That used to cost $10; now you can’t do it at all. Want to it use the card on a cruise line, in a casino, at an ATM, or on an international airline? Forget it.

These kinds of fees, and others, make us wary in general of gift cards–Amex and otherwise. Still, if a bank-issued gift card is a must, the Amex card may be the one to get, at least for now.–Anthony Giorgianni