As the name implies, gift cards are made for giving. These financial tools are loaded up with cash that the recipient can spend on what they want. They’re widely available, both in stores and online, so they can be perfect when you need a last-minute gift and don’t want to take chances on buying something the person may not like.
In fact, a 2023 Bank of America survey found that 76% of consumers say they prefer to buy gift cards for others during the holiday season rather than spend time purchasing physical merchandise.
To get the most out of these financial tools, learn everything you need to know about how gift cards work.
How Gift Cards Work
Gift cards are often associated with a specific store, restaurant chain or brand. You can buy one in a fixed increment, such as a $25 gift card to the Cheesecake Factory or a $100 gift card to Sephora. These cards are typically “closed loop” versions, meaning that you can shop only from that retailer — once the balance is zero you can’t use it any more.
An “open loop” card, which shows a payment transaction company logo, such as Mastercard or Visa, the recipient can use it at other places. They may even be able to add their own funds when the balance has run dry.
Martha Weaver, a spokeswoman for the Minneapolis-based Retail Gift Card Association, says to be aware of the fees that are associated with open loop cards. For example, a $50 Target gift card with a Visa logo may cost you $55, with the extra $5 you pay being the one-time activation fee. A closed loop card usually has no such fees.
[Related:How Much Do You Really Need to Spend on That Holiday Gift?]
Gift Card Do’s
To buy and give gift cards safely and positively, follow these rules.
— Choose a beloved brand. “People love gift cards but you need to make sure you’re buying one for the type of brand the person likes,” Weaver says. If you know that your cousin is obsessed with Apple products, an Apple gift card will be most appreciated.
— Choose a brand that can expand their world. According to the Bank of America survey, 68% of gift card recipients said a gift card prompted them to try someplace new. Therefore if you feel certain the recipient will enjoy a place or thing they haven’t tried before, it’s a risk you may want to take.
— Decide on plastic or digital. Some people prefer physical cards while others prefer the digital version. Think about your recipient. If they’re of a generation that tends not to be tech savvy, the physical card may be preferred, while a younger person may value the online version more.
— Make the amount meaningful. If $15 won’t cover the cost of a meal at a particular restaurant, you’ll be forcing the person to spend money to make up the difference. In fact, the Bank of America survey found that 42% of consumers spend more than the amount of the card’s value. If that will result in a hardship for them, it’s not much of a gift.
— Redeem credit card rewards for gift cards. If you’ve accumulated cash back or points with your credit card, Andrea Woroch, a money saving expert based in Bakersfield, California, says it’s a great opportunity to redeem them for gift cards, especially when your budget is tight. “The gift cards will be free to you, and valuable for the people you’re giving them to,” Woroch says.
— Buy a pack of cards at a discount. When looking for sales, check out what you can get at a wholesale store like Costco, Woroch says. For example, a pack of four $25 Domino’s gift cards will cost you $79.99 instead of $100.
[Related:Sites to Cash in on Unused Gift Cards]
Gift Card Don’ts
Although gift cards are usually safe and secure, there are some drawbacks. Know what not to do when buying and giving them.
— Don’t buy compromised cards. It’s important to check for signs of tampering. Cards that are in a public rack at a store can be compromised. It’s possible for a scammer to take a photo of the bar code and then have access to the funds you load up. “Ask the salesperson for a card that hasn’t been put out yet,” Woroch says.
— Don’t exceed your own financial limits. A $5 gift card may be all that you can afford. If the value seems low, don’t add to it if it means compromising your own budget.
— Don’t send a U.S.-based gift card to an international recipient. Many gift cards purchased in the U.S. can only be redeemed domestically. Read the terms on the packaging to know for sure.
— Don’t forget or lose the receipt. When buying gift cards at the store, it is important to ask the cashier for the receipt and keep it in a safe place, Weaver says. If someone has tampered with the card and it has no value when the recipient goes shopping, you will have proof that you purchased it in that increment and can usually be refunded.
— Don’t purchase gift cards too far in advance. “If you buy gift cards months before you give them, you won’t find out if there is a problem early enough,” says Weaver. Also, by federal law, gift cards can’t expire before five years, but buying too far in advance can erode that time frame.
Don’t buy gift cards at a “too good to be true” discount. “When you purchase gift cards online, use extreme caution,” Weaver says. “When the discounts are too good, they may have been bought with a stolen credit card.” There are legitimate companies that do sell gift cards at a discount, such as Raise, but they are typically 2% to 5% off the face value.
If You’re at a Loss for a Gift Idea, Don’t Guess: Give a Gift Card
Of course you can purchase something your loved one will appreciate, but if you genuinely don’t know what to get, you might just be wasting your money.
“When in doubt, a gift card is a better gift than an ugly sweater,” Weaver says. “Trust me. I have a squirrel sweater somewhere, so I can attest to that.”
More from U.S. News
Why You Should Start Your Holiday Shopping Early This Year
Buy These 6 Things Early This Holiday Season
Gift Card Do’s and Don’ts originally appeared on usnews.com
