Gift cards are the #1 consumer and business gift. Closed-loop gift cards like a Starbucks card make up the majority of the sales according to Mercator but prepaid gift cards, you know the Visa cards at the grocery stores, make up around 20% of the total market. These cards are very flexible for the recipient but have some drawbacks to gifting them.  Let’s take a closer look so you can make the best choice on what to gift.

Not everyone understands exactly what a prepaid card is and how they work differently from closed loop cards so let’s start with a clear definition of a prepaid or open-looped gift card.  According to the Incentive Gift Card Council (IGCC), an open-loop card or prepaid card is purchased with a set denomination that can be redeemed at any merchant that accepts the credit platform such as Visa, Mastercard, American Express and Discover. These cards can be a debit or credit card depending on the product and issuer of the card.

There are pros and cons to these cards, let’s investigate it further.

Prepaid Visa and other prepaid cards.

They give the recipient an incredible amount of flexibility to buy whatever they would like, from any store that accepts Visa or other prepaid cards.  Who wouldn’t love this flexibility?  It’s as good as cash without handing over the green.  You can buy plastic or digital prepaid cards. If you have someone you want to send a gift to immediately, you can easily send a digital prepaid card and the recipient will have it in minutes.  There are several providers that will even let you personalize it with a favorite picture or logo and emboss the recipient’s name and small message onto the card. All of this equals a great gift.

 

Is there a downside to a Visa or other prepaid cards?

The things you need to take into consideration when buying a prepaid gift card as a gift are the:

  • Activation fees, monthly fees, dormancy fees, PIN debit/signature fees
  • Expiration dates
  • Understand that sometimes it’s difficult to spend all the money on the card

Activation Fees. An Activation Fee is a fee that is charged to the buyer of the prepaid card to put value onto the card.  It occurs when you first purchase the card.  At grocery stores, it is typically a $4.95 fee on top of the amount on the gift cards. An example would be $25 + $4.95 activation fee.  It’s a one-time fee and once it is paid you never need to do it again.  Not all cards charge an activation fee but many of them do.  This fee can range from $1.00 to $9.95. 

Monthly Fee. The Monthly Fee is a recurring fee you pay each month for having the card. It typically subtracts the fee straight from the balance on the card so if you aren’t paying attention to your balance, you might miss it.  Not all cards charge this so look for information about the fee when choosing a card. 

Dormancy Fee.  Instead of a monthly fee, some cards charge a dormancy fee if your account isn’t used during a specific timeframe. For example, you make a purchase on 1/1 for a little New Year’s Treat. You don’t use the card again until 4/1. The card has been inactive for 90 days and if dormancy fees apply, you will be charged a small fee like $3.95. Every 90 days it is unused, you will continue to be charged a fee.

PIN Debit Purchase Transaction Fee or Signature Purchase Transaction Fee.  Many of the prepaid gift cards are debit cards. If you choose a debit card, look for a PIN Debit or Signature Purchase Transaction Fee. What exactly does this mean? When using a debit card, users can opt to go the “debit” route and enter their personal identification number (PIN) when making a transaction. Or, they can decide to use their debit card as they would a credit card and sign for the purchase.  Either way, you will be assessed a small bank fee. A typical charge would be $0.95 per transaction.

Expiration Dates. Some prepaid cards have expiration dates and are only good for three to 12 months. Others expire out after monthly fees deplete the balance to zero.  Make sure to understand this. There are horror stories about people collecting them for a big trip only to have little to no value on the cards.

It’s not always easy to use them as well. Most online shopping carts have a security measure in place to verify the ‘billing address’ and name associated with the credit or debit card. When the card has not been registered you might get declined at the point- of-sale.  To correct this, you simply need to register the card with the issuer. Most of them have a website to do so.

  • Restaurants and other service merchants often run a card for 20 percent more than the total bill to cover gratuity. If the card will not cover the additional amount, you might get declined out. Simply ask the cashier to run the card for the bill amount only. Be prepared to pay the gratuity or bill difference with another form of payment.
  • Gas stations are another spot for issues.  Payment processing terminals at gas stations vary. If your tank of gas is more than the amount on the prepaid card, many will get declined.  In general, the best way to use your card at a gas station is to pay inside. Tell the attendant to only charge the amount you specify and to run the card as a “credit” transaction.
  • Most of the issues with redemption occur when the purchase amount you were attempting may have been greater than the available balance on the card. Many points of sale registers aren’t set up to check your card balance before authorizing the transaction. When the purchase price is larger than the amount on the card, it will get declined out if the register can not check balances. In this case, the card will get declined even though there is money on the card. The best practice is to check your card balance and make sure it is equal to or more than your purchase amount before trying to use it on a purchase.

There are so many gift cards to choose from, hopefully, this gives you a better understanding of the differences between prepaid gift cards (Visa, Mastercard, Discover) and brand gift cards such as the ones you can purchase on Buygiftcards.com for specific stores like Chipotle, American Eagle and Macy’s.