Prepaid Cards vs. Gift Cards: Why Use Them & What’s the Difference?
Both prepaid cards and gift cards resemble plastic bank credit cards and can be used to make in-store or online purchases. They are also popularly used as gifts and serve as a versatile way to give recipients funds to buy whatever they like that is safer than cash and more convenient than a personal cheque.
According to Deloitte’s Holiday Retail Sales Consumer survey of 2020, gift cards were in the top category along with general gifts as the area in which consumers spent the most money this holiday season. And prepaid cards continue to grow in popularity. According to the 2019 Payments Canada report, prepaid card usage grew by 64% last year.
With shoppers significantly cutting back on in-store visits, the demand is high for convenient payment options that meet safety needs. In addition to the shift to online, it is clear that contactless solutions are more important than ever.
Prepaid cards and gift cards are poised for exponential growth because of the convenience and safety they offer as payment options. But is one better than the other? Here we have outlined some key differences to help you decide.
Prepaid cards generally have flexibility. In an open-loop program, prepaid cards are accepted anywhere that has credit card capabilities. This includes online purchases as well. Closed-loop cards will have customized restrictions depending on the program.
Gift cards are usually limited in their usage. They are often tailored to a specific retailer. If they are not part of a network of different retailers, then they can be only used to make purchases with that particular retailer.
You may have more protection here than gift cards; however, every prepaid provider has its own unique security standards. Visa prepaid cards are covered by Visa’s Zero Liability policy. These programs generally mean that cardholders aren’t responsible for fraudulent purchases as long as the loss or theft is reported promptly. However, there are some exceptions; so, read the fine print.
Registered gift cards provide protection against lost or stolen cards. Provided the card has not been used you should be able to receive a new card. If the gift card is unregistered then lost or stolen funds most likely cannot be retrieved.
One of the key features that make prepaid cards attractive is their ability to be reloaded. Once the card is acquired, funds can be continuously loaded depending on the cardholder’s needs.
Gift cards are usually loaded with a specific amount of money. Once the funds have depleted, the card is usually destroyed and a new card is needed.
Prepaid cards where your funds are loaded onto a card do not have an expiry date. The physical card may have a replacement date but the funds will never expire.
Gift cards can have an expiry date if they are used for promotional purposes or for a specific use. Make sure to check the fine print when you receive the gift.
Prepaid cards often charge a monthly fee, and may charge other service fees. For example, there may be a fee to reload money or withdraw funds at an ATM.
Gift cards often have fees associated with them when initially purchasing them from retail locations. There generally aren’t any inactivity and monthly fees in the first year but they can be charged after the first year.
- Both prepaid cards and gift cards are loaded with a set amount of money.
- Prepaid cards, a type of debit card issued by a bank or credit card company, can be used to make purchases, pay bills, or get cash from ATMs.
- Gift cards are mainly for use at a particular retailer, though some credit card companies issue them too; they traditionally can only be used to buy items.
- Unlike most gift cards, prepaid cards can be used indefinitely, as long as money is continually added to the card.
- Both options offer convenience and meet safety needs as they can be used as contactless payment solutions.
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