Is Gifting a Prepaid Gift Card a Good Idea?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Updated on Wednesday, April 17, 2019

There are plenty of people who still follow the time-honored practice of giving an envelope of cash as a gift when they have no idea what a friend or relation really wants. This is becoming increasingly rare, however, as many are going with prepaid gift cards instead. But what kind of prepaid card should you choose?

The global gift card market is expected to hit $750 billion in sales by 2026, according to Research and Markets. If the idea of slipping a few twenties into a birthday card doesn’t appeal to you, there are countless gift card options, all with their own pluses and minuses.

We’ve rounded up the advantages and disadvantages of each type of prepaid gift card. If you’d like to give a prepaid card as a gift, store-branded cards might be your best bet — if you know what kind of store your recipient prefers. If you don’t, a more generic credit card-branded prepaid gift card might be a better choice.

What’s the difference between a gift card and prepaid debit card?

When you think gift card, you probably think of a store-branded card — from Macy’s, Best Buy or L.L. Bean, for example — which are only valid at a specific retailer. Another option is a credit-branded gift card — from MasterCard, Visa, or AmericanExpress — that can be used anywhere those credit card brands are accepted. Both types carry a set amount of money, and most are not reloadable.

A prepaid debit card, meanwhile, is not commonly given as a gift, but usually used by people in a way similar to a checking account. They load money on the card or have others deposit funds on the card, and then they can use it like a regular debit card — although it’s not connected to a bank account. These cards can be given as gifts, but they’re not a great option because of their expense. Many of them have monthly charges as well as other fees for reloading the card or using the card to withdraw money from an ATM.

A prepaid gift card is often used as a stand-in for a checking account for people who would have a hard time getting a checking account with a bank. You can use them to pay for items in a store, and even have your paycheck or Social Security benefits deposited on them.

Here is a closer look at some pros and cons of prepaid store- and credit-branded cards, and prepaid debit cards.

Store gift cards

These are straightforward Starbucks, Old Navy, Amazon or you-name-it cards, branded by a single merchant and usable only for a prepaid amount of that merchant’s products.

Pros:

  • Recipients can choose what they want to buy.
  • They can maximize value by redeeming during sales.
  • People giving store cards save money on the cost of shipping products.
  • Typically, no purchase fee is charged.

Cons:

  • Redeemable at only one merchant.
  • Small balances are often left unused.
  • If the merchant goes out of business, the card may become useless.
  • If the recipient loses the card, the merchant might not replace it. However, some may give a replacement if you have proof of purchase and the card’s ID number.
  • If you bought the card off the rack, a scammer could have copied the gift card code with plans to steal any money loaded on the card.

Credit-network branded gift cards

Visa, MasterCard, Discover or American Express gift cards offer prepaid purchase values in varying amounts.

Pros:

  • These can usually can be used wherever the network-branded credit card is accepted.
  • Some of these cards can be reloaded with more money.

Cons:

  • There could be a small fee to buy and activate network cards.
  • If you bought the card off a rack, a scammer could have copied the gift card code with plans to steal any money loaded on the card.

Prepaid debit cards

These are not, primarily, gift cards and therefore are not subject to federal rules regulating gift cards, so users should beware. Like Visa, MasterCard, American Express and Discover prepaid gift cards, they are typically redeemable wherever network-branded credit cards are accepted. They are also often used more like debit cards because they can be reloaded with money, though unlike regular debit cards they are not connected to a bank account.

Pros:

  • Prepaid debit cards offer enough features to serve as a substitute for checking accounts for people whose banks might not allow them to open a checking or savings account.
  • Spending and ATM limits can be set for a teenager or college student to provide support within boundaries.
  • In some cases, you can set up direct deposit to the card.

Cons:

  • Many (but not all) prepaid debit cards charge high fees. For example, Green Dot (one of the biggest prepaid debit card companies) charges a $7.95 monthly fee unless you load at least $1,000 a month, and potentially as high as a $4.95 fee per reload.
  • Prepaid debit cards do not give you the chance to build credit history.

Tips for using a prepaid gift card effectively

Whether you’re in the market for retail gift cards, or Visa, MasterCard, Discover, or American Express gift cards, always read the fine print. And of course, you’ll want to make the best use of your prepaid gift card, whether you’re the giver or the recipient. Here are some ways to make that happen:

  • Buy the cards from a trustworthy source. Beware of buying a prepaid gift card from online auction sites; they could be fake or stolen.
  • Check the card. If the protective sticker or coding is damaged or scratched, don’t buy the card, or return it if you’ve already purchased the card or received it as a gift.
  • Keep the receipt. In case you lose the prepaid gift card, it’s a good idea to have the receipt and card ID number in case you need to replace the card.
  • Use the card quickly — gift cards are easy to forget about or lose.
  • Check the expiration date. By law, gift cards can’t expire for five years from the date they were issued.
  • Make a trade. If you get a prepaid gift card to a store where you don’t shop, there are websites that let you sell or trade your cards — just do your homework and make sure they’re legitimate.
  • Get all your money. So what to do in those cases where you just have a few dollars left on a prepaid gift card? In some states, you may be able to ask for the remaining balance in cash if it’s less than a certain amount.

The bottom line

All gift cards and prepaid debit cards have their advantages and disadvantages. The smart shopper who keeps this in mind, however, should be able to find a good deal. Still, it’s important to stay sharp even after making your purchase, given the abundance of fraudsters out there hoping to cheat the unwary.

One particularly popular current scam, surprisingly, involves draining the value from iTunes gift cards. After pitching a story about an old friend or relative in need of assistance, or the chance to secure a valuable prize in exchange for paying a fee, the scammer asks you to buy an iTunes card and give them the serial number — which they immediately use to drain the card’s cash value or sell the card online.

The quick takeaway? Never give your payment information or gift card information to a stranger. The important thing, whether you’re the gift-giver or recipient, is to make a prepaid gift card a present that can be enjoyed instead of a hassle.