How Gift Cards Work

The Basics of Gift Cards

Gift cards are prepaid payment instruments that store a monetary value. They provide a convenient way to give gifts or manage personal spending. Understanding how they work can help you use them more effectively and safely.

Gift Card Components

How Gift Cards Are Used

Activation Process

Before a gift card can be used, it must be activated. This typically happens at the point of purchase when the retailer or issuer loads the specified amount onto the card. Until activation, the card has no value even if purchased.

Making Purchases

To use a gift card, the cardholder presents it at checkout, either by swiping the physical card, entering the card number online, or scanning a digital code. The purchase amount is deducted from the card's balance.

Checking Your Balance

Most gift cards allow you to check the remaining balance through several methods:

• Online balance checker on the issuer's website
• Phone call to a customer service number
• Asking a cashier at the point of sale
• Mobile app if available
• Receipt after each transaction

Types of Gift Card Systems

Closed-Loop Gift Cards

These cards can only be used at specific retailers or restaurant chains. They are typically easier to obtain and often have fewer fees. Examples include cards from specific stores or restaurant brands.

Open-Loop Prepaid Cards

These cards can be used at multiple merchants that accept standard card payments. They offer more flexibility but may come with activation fees or monthly maintenance charges.

Important Features and Limitations

Expiration and Fees

Under federal law in the United States, gift cards generally cannot expire for at least five years from the date of purchase or last load. However, certain fees may apply after periods of inactivity, which must be clearly disclosed.

Partial Payments

If your purchase exceeds the gift card balance, you can typically pay the difference with another payment method. Some merchants allow split transactions automatically, while others may require manual processing.

Returns and Refunds

When you return items purchased with a gift card, the refund is usually credited back to the same gift card if possible. Store policies vary, so it's important to understand the specific retailer's procedures.

Security Considerations

Gift cards should be treated like cash. Keep your card number and PIN secure, and report lost or stolen cards immediately. Many issuers can replace lost cards if you have the card number, though policies vary.

Digital vs. Physical Gift Cards

Physical gift cards are tangible cards that can be given directly to recipients. Digital gift cards, also called e-gift cards, are delivered electronically via email or mobile app. Both function similarly, but digital cards offer instant delivery and cannot be physically lost.