Gift Cards vs. Prepaid Debit Cards

What You Need to Know

For a person who hates to shop or the person who is hard to shop for, money tends to be a gift favorite. Giving money as a gift saves the time, energy, and decision-making skills that buying tangible presents require. Each year, millions of gift cards and prepaid debit cards are purchased and distributed as a more sophisticated way of giving family, friends, and co-workers financial gifts.

Plastic presents can be used as the perfect way to be generous to people who typically mismanage cash or use it to feed unhealthy addictions. For example, a gift card to Target might be the perfect gift for your otherwise picky aunt who will give a cash gift away to her son who refuses to get a job. A prepaid Visa debit card could prove beneficial for the co-worker who drinks too much.

During this holiday season, many of you will give or receive at least one such card as a Christmas gift so today I'd like to offer a little insight into purchasing and using gift cards and prepaid debit cards. Before you purchase gift cards or prepaid debit cards, make sure you understand what your money is buying.

The Similarities:

• They are prepaid cards that allow you to determine the amount of the gift, although some are predetermined (i.e., $25.00, $50.00).
• They are accepted at millions of locations, including online (check the back of the card for more information).
• Some are activated at the time of use while others require you to activate them via a phone call or online registration.
• Each time you make a purchase, the amount is automatically deducted from your available balance.
• Not all receipts will include your balance, but you can check them online (see the back of the card).
• Keep the card even after it has a zero balance because it will be needed if you return items purchased using it.

The Differences:

• Gift cards are typically non-reloadable (although some merchants are changing that). Once the balance is zero, no more money can be added to it. Prepaid debit cards are reloadable.
• Gift cards are accepted at very specific locations (i.e., Red Lobster, Lowe's), whereas prepaid debit cards are accepted at a variety of businesses.
• Most gift cards work in the same way as credit cards; instead of providing a pin number, your signature is provided in order to complete transactions. Prepaid debit cards come with pin numbers or can be used like a credit card, allowing you to use your signature at the time of purchases.
• There are usually no fees associated with purchasing and/or using gift cards, however, prepaid debit cards may charge activation fees, monthly maintenance fees, ATM fees, balance inquiry fees, purchase fees, and even inactivity fees.
• If you make a purchase that is more than the gift card balance, the transaction may be denied until the difference is paid in cash first unless you notify the cashier in advance. Prepaid debit card purchases that are more than your remaining balance will incur overdraft fee.
• Gift cards are typically meant to be used short-term for purchases while prepaid debit cards are meant for long-term use.   
• Purchasing gift cards requires no personal information; purchasing prepaid debit cards will require identifying information (i.e., name, address, birthdate). 

So, before you purchase or use a gift card or prepaid debit card, keep in mind what you've learned today and make the most of these plastic presents. Don't give them as gifts to people who don't like them, won't use them, or have a tendency to forget they have them. Most of all, remember that gift cards and prepaid debit cards aren't the same as cash and are only as useful to recipients as the merchant and amount on them.