What is the difference between a prepaid card and a gift card?

What is the difference between a prepaid card and a gift card?

Prepaid vs Gift Cards: An Overview

Both prepaid and gift cards are pieces of plastic that can be used for shopping. They also make popular gifts: a versatile way to give recipients the funds to buy whatever they like, which seems safer and more premium than a wad of cash, and more convenient than a personal check. Two The biggest difference between the two reflects their permanence: Prepaid cards can be reloaded and used indefinitely, while gift cards can generally only be used after the dollar amount on them has been exhausted.

KEY TAKEAWAYS

  • Both prepaid cards and gift cards have a fixed amount.
  • A prepaid card is a debit card issued by a bank or credit card company that can be used to make purchases, pay bills, or withdraw cash from ATMs.
  • Gift cards are primarily used at select retailers, although some credit card companies also issue gift cards; traditionally, gift cards can only be used to purchase items.
  • Unlike most gift cards, prepaid cards can be used indefinitely as long as you keep adding money to the card.

What is a prepaid card?

A prepaid card is technically a debit card. Visa, MasterCard, and Discover, issued by financial institutions or credit card companies, all offer them to deposit or load a certain amount of money. They can then be used in person or online to buy items or pay bills. They can also withdraw cash at ATMs.

Just like regular credit cards, prepaid credit cards have a number and expiration date printed on the front or back, and can often be used in the same places. The amount deposited or “loaded” onto the card represents the card’s credit limit, i.e. how much it can be charged. Once the balance on the card is used up, the card is worthless unless more funds are deposited on the card. Prepaid debit cards can be reused as long as the cardholder keeps adding money to the card. However, it may be billed monthly.

Although the terms are often used interchangeably, these prepaid cards are the same as prepaid credit cards. Prepaid credit cards require an application, credit check, and approval from the card issuer, and function like regular credit cards: cardholders can maintain an outstanding balance, receive a monthly statement single, and so on. The key difference is that if the cardholder defaults on payment, approval of the card are subject to the issuer’s margin collateral.

A prepaid card is technically a prepaid debit card: when used in a transaction, the money on it is subtracted immediately, rather than being placed on the balance for later payment.

What is a gift card?

A gift card is also a stored-value card that holds funds for future discretionary use. Only it contains a certain amount of money. Once the money is spent, the card can no longer be used. Gift cards also have expiration dates, which are usually much shorter than prepaid cards.

Gift cards can be purchased in several different formats. The most common type is what’s technically called a closed-loop card: it’s only available to a specific merchant or a specific retailer and carries the garment’s name and logo. Some retail groups will allow the same gift card to be used at any of their affiliated stores.

Gift cards start at a specific store. Now, however, many major fee or credit card issuers, such as American Express, Visa, Discover, and Mastercard, are also offering gift cards, as long as regular plastic cards are accepted. Known as open-loop cards, these cards are most easily confused with prepaid debit cards, especially since some of them are also reloadable. There may be a one-time activation fee for these cards.

By aamritri

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