Gift cards are offered by most store and service operations today and are a very common form of gifting. 

Gift cards are offered as a physical card or an e-gift card. Each type has its advantages and disadvantages. Understanding  how gift cards are effectively used is important if you plan to use them during the holidays.

Key Takeaways

• Gift cards can be a convenient substitute for cash.

• Physical gift cards can be used in stores or online.

• Digital gift cards are used online.

• Check for fees or expiration dates.

What’s the Deal with Gift Cards?

They are the form of payment that can be used to make purchases at retail stores, gas stations, restaurants, and other locations. Money may be added to a physical or online gift card.

Gift cards can be flexible or vendor specific. A flex gift card acts in the same manner as a credit card and may be used for purchases where the card is accepted, i.e. VISA Gift Card.

A vendor specific card, can only be used at the place of issue, like Starbucks or a car wash.

Prepaid cards may charge a fee to purchase them or reload them. 

Check the fine print before you purchase.

Physical vs. Digital Gift Cards

Gift cards can be physical or digital. Physical cards are usually very similar to a plastic credit card. Digital gift cards are assigned a unique code number used to redeem at online retailers

Federal law prevents gift cards from expiring for up to five years after their activation date but inactivity could trigger a fee. Again, check the terms and conditions

Gift Card Advantages

• Good substitute for cash or credit cards

• Great gift for the holidays or special occasions

• Controlled Spending as each card has specific amounts loaded on the card.

• They can be easy and convenient to use.

Gift cards are a great idea if you have kids or grandchildren who do not live nearby. I have personally purchased many e-gift cards from Amazon for kids and grand children who are living  in other locations.

Five Factors for Gift Card Failure

• Small amounts of money left on cards may not be spent or is forgotten

• Reload fees may apply

• Vendor specific cards limit use

• Losing a gift card is like losing money

• Inactivity fee may be charged

Prepaid Credit Cards vs. Gift Cards

What is the difference between them and prepaid debit or credit cards. 

Both can be used to make purchases either in stores or online. Gift cards are usually given as a gift where a prepaid credit card is something you might use for everyday spending if you don’t have a bank account or would rather not pay with cash or a regular credit card.

The credit card companies offer prepaid cards that can be reloaded as well as PayPal, Venmo and other online banks and credit card companies.

Prepaid credit cards, debit cards, and reloadable gift cards generally offer better value than vendor specific gift cards. Standard credit cards may offer some advantages such as earning rewards on purchases or taking advantage of card-specific features, such as travel incentives or rewards bonuses.

Something else to keep in mind when weighing whether to use prepaid credit cards or gift cards for purchases is how they affect your credit score. They will not show up on credit reports and they do not help to build your credit history.

Gift cards and prepaid credit cards are a great way to let someone you know they are appreciated and let them use the gift for something they might need. Not too long ago, Gift cards were looked at as second class gifts but much has changed as it allows the receiver to purchase items they may need. Be generous, but be careful as you use gift cards this holiday season! 

Rick Cobello, a professor of Supply Chains and Cyber Security programs at Albany Law has over 30 years of experience in enterprise technology and security solutions. His career has spanned from local and state government to Fortune 5 companies, including General Electric. He has global experience in health care, a Master Black Belt in Six Sigma and Security certifications in CEH, CISSP, and CHFI. He currently is President of Global Cybersecurity Solutions.