What are gift cards?

Gift cards are pre-paid credit cards that are given by one person, who puts the money on the card, and spent by another person who is the card holder.  Unlike normal pre-paid cards these gift cards are usually a one off gift rather than an ongoing card.  However they can be topped up by more than one person, including the person who receives the card.

There are two uses of gift cards, personal gift cards and gift cards from a provider.  Personal gift cards are when one person gives a card to someone else instead of giving cash.  In these cases there is rarely a credit account opened as it is hard for the credit account to be open without the recipient knowing.

Gift cards as presents have the benefit of being far more secure than cash.  If a gift is lost or stolen then it is relatively simple to cancel the lost card and replace it, something which can’t be done with cash.

Gift cards are also easier to give than cash, especially through the post.  They are not as easy to find in an unopened envelope as cash is and they are also easier to replace.  As most gift cards have to be activated before being used then they are also not very desirable, unlike cash.

As gift cards are prepaid, and do not have a credit balance, there is no lower age limit.  In this way they tend to be good for teenagers who are not able to have a credit card, but would benefit from learning how to handle a credit card, in the same way that at a slightly younger age they get an allowance in order to be able to handle cash.  As gift cards are prepaid then it is not possible to build up a credit record on them, and this should not be a reason for buying a gift card.

Gift cards are also given out by stores and credit card providers.  In the case of store cards they are often tied to the store, and can only be used there.  The purpose of the gift card in these circumstances is to be getting the target customer used to the store and what the store has to offer.  In this way they are aiming to build an ongoing relationship with the customer.

Credit cards are sometimes given out by credit card providers to target groups such as students with a small prepaid balance already on the card.  This is not a prepaid card, but a pre-approved card.  In these cases a credit balance can be built up.   Care should be taken to read the terms and conditions of these cards, particularly before borrowing on them.