Both gift cards and prepaid cards allow you to make purchases up to a certain amount determined by the initial load placed on the card. However, there are some key differences between the two types of cards:
Gift Cards
A gift card is a prepaid card that has been loaded with a specific amount of money to be used as a gift for someone. Here are some key features of gift cards:
- Gift cards are usually given as presents for birthdays, holidays, graduations, weddings, etc.
- They can be purchased with a specific amount loaded, often between $10-$500.
- Gift cards are generally redeemable at a single merchant or affiliated merchants. For example, you may purchase a Target gift card to be used at Target stores.
- If unused, gift card funds do not expire in many states. However, some states allow cards to expire usually after 5+ years.
- Gift cards cannot be reloaded with more funds once purchased.
- The gift card balance remains until it is fully spent according to the policies of the issuing merchant.
- Lost or stolen gift cards can have funds replaced if you have the gift card number and receipt.
In summary, gift cards are merchant-specific, non-reloadable cards that are given as gifts with a preloaded amount.
Prepaid Cards
A prepaid card is a payment card that is loaded with funds to be spent wherever major cards are accepted. Here are some key features of prepaid cards:
- Prepaid cards can be purchased by anyone to be used like a debit or credit card.
- They can be loaded with any amount between $10 to $5,000+.
- Prepaid cards can be spent anywhere major credit and debit cards are accepted – online, in stores, for bills, etc.
- Unused funds may expire in 6-24 months depending on the card. Monthly fees can also apply after the first year.
- Prepaid cards can be reloaded with additional funds as needed by the cardholder.
- Lost or stolen prepaid cards can have funds replaced after reporting, similar to debit cards.
In summary, prepaid cards are reloading spending cards with more flexible usage than gift cards.
Major Differences
While gift cards and prepaid cards share some characteristics, there are some key differences between the two types of cards:
| Gift Cards | Prepaid Cards |
|---|---|
| Given as gifts for special occasions. | Purchased by individuals for themselves. |
| Redeemable at specific merchant(s). | Redeemable anywhere major cards are accepted. |
| Cannot be reloaded with more funds. | Can be reloaded with additional funds. |
| Rarely expire in most states. | Can expire within 6-24 months if unused. |
| No or minimal fees. | Can have monthly fees after first year. |
As you can see, the main differences come down to intended use, redemption options, reloading abilities, and fees. Gift cards are for gifting money to be spent at specific merchant(s). Prepaid cards are for individuals to spend money anywhere major cards are accepted, with the ability to add more funds as needed.
Types of Gift Cards
There are a few main types of gift cards:
- Retail gift cards – These allow you to make purchases at a specific retailer, in stores or online. Examples are Target, Walmart, Best Buy, Home Depot, etc.
- Restaurant gift cards – These are redeemable at a particular restaurant, from fast food to fine dining. Examples include Starbucks, Chipotle, Olive Garden, etc.
- Visa/Mastercard gift cards – These can be spent anywhere Visa or Mastercard is accepted. Funds are preloaded by the giver.
- Entertainment gift cards – These allow you to purchase tickets, merchandise or services for entertainment venues. Examples are movie theaters, amusement parks, live performance venues, etc.
- Travel gift cards – These can be used for hotels, rental cars, flights, cruises, etc. Issuers include American Airlines, Hilton, Avis, etc.
Within these broad categories, there are countless gift card options from major companies and local businesses. The key is that the gift card is limited to purchases from the issuing merchant or affiliated merchants.
Types of Prepaid Cards
There are several types of prepaid cards:
- General purpose reloadable (GPR) cards – These can be used to shop anywhere and add funds as needed. Providers include GreenDot, NetSpend, American Express, Chase, etc.
- Teen prepaid cards – Cards with parental controls to help teach budgeting. Providers include Greenlight, gohenry, FamZoo, etc.
- Payroll prepaid cards – Employers can issue these to add wages for unbanked employees. Funds are directly loaded by the employer.
- Government benefit cards – State and federal agencies issue these to distribute benefits like SNAP, TANF, unemployment, etc. to eligible recipients.
- Travel prepaid cards – These function as prepaid currency cards when traveling internationally. You can add multiple currencies.
Within these types, prepaid cards can also differ by fees, loading methods, redemption networks, security features, and more. But overall, the money on any prepaid card can be spent nearly anywhere.
Gift Card and Prepaid Card Regulations
Gift cards and prepaid cards are regulated under federal and state laws regarding consumer protections. Here are some key regulations:
- The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 established rules at the federal level for gift cards and prepaid cards, including:
- – At least 5 year expiration dates
- – Limits on fees except under certain conditions
- The Dodd-Frank Act gave the Consumer Financial Protection Bureau (CFPB) oversight authority over gift and prepaid card regulation.
- Many states have additional laws on expiration dates, fees, liability, disclosure, etc. For gift and prepaid cards sold in that state.
- State gift card laws can also include unused gift card funds being considered unclaimed property after a certain period. The value then reverts to the state’s coffers.
- Most gift cards and prepaid cards are required to disclose all material terms and conditions to the consumer to ensure transparency.
Understanding the applicable federal and state laws helps protect consumers’ rights when buying, using, and redeeming gift and prepaid cards.
Gift Card and Prepaid Card Security
Both gift cards and prepaid cards have security measures to help prevent fraudulent use of the card value. Protection can include:
- Embossed numbers – Makes cards harder to copy or counterfeit
- Magnetic stripes – Allows card to work in magnetic swipe terminals
- PIN codes – Provides extra verification when making purchases
- Chip technology – Improves security when used at EMV chip-enabled terminals
- Scratch-off panels – Hides card numbers until revealed by owner
If a gift or prepaid card is lost or stolen, it is important to report it to the issuing provider right away. Many providers have zero liability policies to protect consumers against fraudulent use. Keeping the card number and receipt secure is also recommended in case funds need to be replaced.
Gift Card and Prepaid Card Fees
Gift cards tend to have minimal to no fees associated with them. However, prepaid cards can come with an assortment of fees including:
- Activation fees – One-time fee to activate the card, ranging $3-$15
- Monthly maintenance fees – Charged monthly after 12 months, usually $2-$5
- ATM withdrawal fees – Each out-of-network ATM transaction, around $2
- Cash reload fees – Charged to add more funds to the card, around $3-$5
- Inactivity fees – If card is unused after a period of time, up to $5/month
- Balance inquiry fees – Each balance check via ATM, around $1
- Foreign transaction fees – Charged for transactions in different currency, 3%
Reading the cardholder agreement carefully is recommended to understand all applicable fees before purchasing a prepaid card. Costs can add up over time.
Gift Card and Prepaid Card Advantages
There are several advantages to using gift and prepaid cards in different circumstances:
- Convenience – Cards are simple to use and widely accepted.
- Flexibility – Funds can be spent in-store, online, over the phone, etc.
- Budgeting – Cards allow users to limit spending to the preloaded amount.
- Accessibility – Cards provide a payment method for those without bank accounts or credit.
- Security – Low risk compared to carrying large amounts of cash.
- Gifting – Gift cards allow you to give the gift of choice.
In the right situations, gift and prepaid cards offer control, convenience, and flexibility for both consumers and recipients.
Gift Card and Prepaid Card Disadvantages
Gift and prepaid cards also come with some potential drawbacks including:
- Loss or theft can mean losing the remaining funds.
- Maintenance, inactivity, cash loading or other fees can reduce the card balance over time if not used quickly.
- Fraudulent use can be difficult to recover if gift/prepaid card protections are not used.
- Some prepaid cards lack FDIC insurance that protects debit card balances.
- Cards could be overlooked and unused if given as an impersonal gift.
- Merchant-specific gift cards limit where funds can be spent.
Being aware of these disadvantages allows consumers to use caution and minimize risks when selecting, purchasing, and redeeming gift and prepaid cards.
Conclusion
In summary, gift cards and prepaid cards offer the convenience of card payments without the need for bank accounts or credit. Both allow users to spend up to the preloaded amount wherever accepted. However, gift cards are designed specifically as gifts for redeeming at certain merchants. Prepaid cards offer broader usage and the ability to reload funds as needed. By understanding the key differences in regulations, security, fees, advantages and disadvantages, consumers can choose wisely between gift and prepaid cards for their individual needs.
