What Are the Pros and Cons of Gift Cards?

Almost all businesses, both online and in-store, provide gift cards as a method for customers to spend or send money to friends. Physical and digital (e-gift cards) gift cards are available, each with its own set of features and benefits. If you want to buy gift cards for others or for yourself over the holiday season, it’s helpful to know how they compare to other payment options.

Key Points

  • When you need to make a purchase or want to offer a present to someone else, gift cards may be a simple and helpful alternative to cash.
  • Digital gift cards are meant to be used online or over the phone, while physical gift cards may be used in shops or online.
  • To make purchases quicker and more secure, digital gift cards may be attached to mobile wallets.
  • If you want to reload money onto a physical or electronic gift card, make sure to check for expiration dates and/or fees.

How Gift Cards Work

A gift card is a type of payment that may be used at retail stores, petrol stations, restaurants, and other establishments. You put money onto the card, which you or the receiver of the gift card may then use at any place that accepts it.

Open-loop and closed-loop gift cards are the two types of gift cards. An open-loop gift card can be used anyplace that accepts that particular brand of card. If you have a gift card with the Visa logo on it, for example, you may use it to make transactions everywhere Visa is accepted.

On the other hand, a closed-loop card can only be used at specified businesses. If you buy a gift card from Starbucks or Amazon, for example, you or the receiver can only spend it at the store that issued the card.

Warning: The purchase of some prepaid gift cards is subject to a cost. If you want to reload money onto a gift card, you’ll have to pay a separate charge.

Physical vs. Digital Gift Cards

Physical (i.e., a plastic card) or digital gift cards are available (i.e., a digital file). Digital gift cards do not have a physical form; instead, you are given a unique gift code number that you may use to make purchases at online shops. The most common type of gift card is still physical cards, although this is anticipated to alter in the near future.

Customers may buy physical cards as well as fill online or digital accounts at companies like Amazon, Walmart, and Target. Customers may get digital and physical gift cards from major food brands including Starbucks, Chipotle, and Chilies. Customers may pay for beverages and meals with these cards by using an app or a card reader at the institution, which speeds up the checkout procedure.

You may also use a mobile wallet service like Apple Pay, Google Pay, or PayPal’s Venmo to save codes for digital gift cards. When you’re ready to pay, you can choose your digital gift card as your chosen payment option.

Important: Gift cards are not allowed to expire for up to five years after they are activated, however neglecting to use one may result in an inactivity fee.

Pros of Gift Cards

Gift cards can provide a variety of benefits. Consider the following scenario:

  • They might be a good choice if you don’t want to pay with cash or a credit card.
  • During the holidays or for any other special occasion, gift cards are a fantastic way to show someone you care.
  • Gift cards might assist you in keeping track of your spending (Avoiding bank overdrafts is made easier with this tool.).
  • They have the potential to be easy to use and understand.

Gift cards may be a better alternative if you don’t know what to purchase someone on your gift list because they allow the recipient to select what they want and when they want it. When deciding between closed-loop and open-loop gift cards, keep in mind that the giftee’s possibilities for using the cards are limited.

Tip: If you’re interested in utilizing gift cards to teach your children about money, look into prepaid debit cards for teenagers. They function in a similar way, although they are usually open-loop.

Cons of Gift Cards

There are certain disadvantages to using gift cards. Here are five of them.

  • There may be a little amount of money left over after making purchases with a gift card, if not used, which, is money squandered, whether due to forgetfulness or lethargy.
  • To add money, you can pay purchase or reload costs.
  • The purchasing power of closed-loop cards is limited.
  • It’s a pain to lose or have a gift card stolen, especially if you didn’t register it or save the gift card number.
  • If you don’t use your card, you could be charged an inactivity fee.

Important: While prepaid gift cards, like debit and credit cards, might be stolen or lost, there is some good news: gift cards issued by retailers and banks are covered under the 2009 Credit Card Responsibility, Accountability, and Disclosure (CARD) Act.

Prepaid Credit Cards vs. Gift Cards

When considering the benefits and drawbacks of gift cards, it’s vital to distinguish them from prepaid debit or credit cards. Both may be used to make purchases in stores or online, but if you don’t have a bank account or choose not to pay with cash or a traditional credit card, a prepaid credit card can be used for everyday shopping.

Prepaid credit card businesses provide a variety of cards that allow customers to purchase and refill cards at retail locations. The PayPal Prepaid MasterCard, for example, allows users to transfer money quickly and effortlessly between their PayPal account and a real card that can be used everywhere MasterCard is accepted.

Tip: If you have no or bad credit, consider a secured credit card. These cards usually demand a small initial deposit, but they can serve as a stepping stone toward establishing credit.

Prepaid credit cards, debit cards, and reloadable gift cards are typically better valued than retailer-specific gift cards, but normal credit cards might have certain benefits when it comes to collecting points on purchases or using card-specific features like travel incentives or rewards bonuses.

When deciding whether to utilize prepaid credit cards or gift cards for purchases, keep in mind how they influence your credit score. Because you are not borrowing money, these accounts are not loans and will not appear on your credit reports. This implies they don’t contribute to the development of your credit history. A normal credit card can help you develop or enhance your credit if you’re seeking a means to do so. Paying your bills on time each month, keeping your balances low, keeping older credit card accounts active, and limiting how frequently you apply for new credit can all help you improve your credit score over time.