Nearly all retailers offer customers gift cards as a method to shop or gift money to their friends, as well as in the brick-and-mortar varieties. There are two kinds of gift cards: physical as well as digital (e-gift cards)–and each has many benefits and features. If you’re considering buying gift cards for your loved ones this holiday season, or if you’d like to purchase the cards for yourself, it’s helpful to know how they differ from other payment options.
The most important takeaways
Gift cards are an efficient and convenient alternative to cash when you want to purchase something or to gift a present to someone who is not your own.
The physical gift cards are available in retail stores or online, whereas the digital ones are made to be used online or via phone.
The digital wallet can include gift card cards, making purchases much easier and safer.
It is important to verify the physical and electronic gift card expirations dates as well as charges when you intend to transfer money onto the card.
How Gift Cards Function
Gift cards are a method of payment that is used to buy items in retail stores, restaurants, gas stations and many other places. You can load funds into the card. either you or the person who received the gift card is then able to spend at places that accept credit cards.
Gift cards can be open loop or closed-loop. A gift card that is open loop can be used wherever the can be used by any brand of card that is accepted. For instance, if own a gift card marked by Visa’s Visa brand, you may use it to purchase items anyplace Visa can be used.
A closed loop card however is only able to be used for specific retailers. For example, if buy a gift card at Starbucks or Amazon either, you or the person who received the gift card can purchase items only at the merchant that issued the card.
Certain gift cards for prepaid use require a cost to purchase them. You can also pay an additional fee for reloading funds to a gift card in the event that you want to use the card.
Physical Vs. Electronic Gift Cards
The gift card can be physical — meaning cards made of plastic, or digital. Digital gift cards don’t have a physical appearance; instead, you’re given an individual gift code that you can redeem online at retailers when you make purchases. Physical gift cards are still the most well-liked type of gift cards, however this is likely to be changing soon in future.3
Companies like Amazon, Walmart, and Target let customers purchase physical cards, as well as to add digital or online accounts. Major chains of restaurants including Starbucks, Chipotle, and Chili’s provide customers with physical and digital gift cards. They make it easy users to purchase food and drinks through an app or in-store card reader, which speeds the process of making purchases.
The pros and cons of gift cards
Gift cards have numerous benefits. Examples include:
They’re a good alternative to pay with a credit card in the event that you prefer not to make a payment in cash or with credit cards.
Gift cards are an appropriate present for Christmas season or for any other event.
Gift cards can be used to limit the amount you spend (helpful in avoiding the risk of bank-related overdrafts).
They are easy and efficient to make use of.
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When it comes to gift-giving Gift cards may be a better option if you’ve no idea what to purchase for the person you’re considering gifting to since they let the recipient to buy whatever they’d like and at the time they’d like to. Keep in mind the gift card you select is closed loop cards over open-loop ones this limits the gift recipient’s options of where they can make use of the cards.
If you’re thinking of giving gift cards to help your children master the art of money management, you might consider researching the prepaid debit cards available for teenagers. They operate similarly, however they typically, they are open-loop.
The cons of gift cards
The gift card can also have negatives. Below are 5 of them.
When you make purchases using the gift card might be a little cash left over, and when not used, be it due to inertia or forgetfulness it will be lost.
You can pay for purchase or reload charges to add funds.
Closed-loop cards limit purchase power.
The loss of a gift card or having it stolen may be a nightmare, particularly in the event that you did not sign it up or retain your gift card number.6
You may be charged an inactivity fee should you do not make use of your credit card.