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Types of gift cards and how to avoid fees

Types of gift cards

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Looking for the perfect gift this holiday season? Look no further than a gift card. Not only are gift cards the perfect size and color, they take away the stress and insecurity of finding “the perfect gift.” The recipient can pick out exactly what they want — when they want.

How times have changed! It wasn’t too long ago that gift cards were viewed as impersonal, last minute buys. But today, they are the most coveted gift for almost everyone.

In fact, a survey by The National Retail Federation found that gift cards remain the most popular items on wish lists throughout the year – not just the Christmas holiday season.

“You’re giving someone the option to buy exactly the things they want and need. Let’s face it, it also makes it a lot easier on you during the gift searching process,” says Beverly Harzog, credit card expert and consumer advocate.

But before we get ahead of ourselves on the many benefits of gift cards, it’s important to know that not all of them are created equal. Let’s look at the different types of gift cards available.

The different types of gift cards

There are essentially two types of gift cards — general purpose and store or brand cards.

General purpose gift cards

Often referred to as “open loop” gift cards, general purpose gift cards are typically issued by the four major credit card networks: American Express, Visa, Discover and MasterCard. They can be used anywhere for almost anything. That’s what makes them a popular choice for people who want to give a gift but aren’t sure exactly what store the recipient likes. These types of gift cards tend to charge fees for use. The fees include an activation fee that typically costs a minimum of $3.95, followed by a $2.50 monthly inactivity fee if the card isn’t use within 12 months.

“What you have to remember is that general purpose cards are never worth the money you pay for them. When you put $100 dollars on a card you’re paying $104.95 — so you’re paying more than the what the card is worth,” says Harzog. She recommends reminding your recipient of the inactivity fees, so they get their money’s worth.

However, the convenience of being able to use the cards anywhere is an upside that many people are willing to pay a bit extra for.

Here’s a breakdown of general purpose gift cards and their fees:

Gift cardActivation feeShipping/Print feeInactivity fee
American Express$3.95$5.95 – $15.95$2.95
Visa$2.95 – $6.95$0$2.95
MasterCard$2.95 – $6.95$0$2.95

Retail or store gift cards

Often referred to as “closed loop” cards, retail gift cards are limited to the store or store chain that issues the card. Although store gift cards are only good for a specific retailer, they’re often a better value because the money you put on the card is the exact amount the recipient has to spend at the store. Store cards rarely come with activation fees or inactivity fees. And since almost every retailer carries a branded gift card, it’s a breeze to find something for even the pickiest person.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act, passed in 2009, provides that gift cards cannot expire within 5 years from the date they were activated and generally limits inactivity fee on gift cards except in certain circumstances, such as if there has been no transaction for at least 12 months.

Don’t confuse gift cards with prepaid cards

Even though they’re often displayed together at gift card kiosks and carry network logos, it’s important to point out that prepaid credit cards are not the same as general use gift cards.

True gift cards are designed to be used until the original balance has been spent, while prepaid cards can be used repeatedly and money can be reloaded onto the card.

WalletHub stresses that, “Unlike gift cards, prepaid cards are not intended to be given to third parties. They’re meant to be registered by the purchaser and used in place of a bank account for direct deposit, ATM withdrawals, purchases and other similar transactions. They’re not intended to give someone money as a gift and are not protected by the Credit CARD Act rules for gift cards.”

Whether you buy or receive gift cards, the Office of the Comptroller of the Currency recommends you read the disclosures to understand important terms and conditions, including:

  • Any fees that apply during or after the sale that reduce the value of the card
  • The expiration date
  • What to do if the card is lost or stolen
  • What to do if there are problems with the card
  • Where the card can be used
  • How to claim any unused portion of the card

Whether you’re giving or receiving a gift card, you should know the fees associated not only with the type of card, but the state laws that govern both types gift cards. ConsumersUnion has a summary of gift card protections offered by state law.

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