DEFINITION of 'Gift Card'

A prepaid payment card that contains a specific amount of money and that anyone can purchase and use, regardless of their credit score. Gift cards can be used for many of the same purposes as credit cards, but because they do not involve taking on debt, they do not require a credit check. Gift cards fill the role that paper gift certificates used to play, but with additional features thanks to improved technology.

BREAKING DOWN 'Gift Card'

There are several types of gift cards. Some can only be used with a single merchant, such as Target or Amazon. Some can be used at any of several stores owned by the same company, such as Gap, Banana Republic, Old Navy and Athleta. Others contain a major credit card company’s logo (e.g., Visa, MasterCard, American Express or Discover) and can be used at any store that accepts these credit cards. Such cards sometimes have activation fees of $5 or so, payable at the time the gift card is purchased, whereas the other two categories of gift cards do not have activation fees. Most gift cards can be used both online and in person.

Some gift cards are reloadable, meaning that additional funds can be added later. Others are not reloadable, so once the balance is spent, they have no further use. Gift cards usually have a minimum and maximum initial loading amount. A common minimum is $10 and a common maximum is $500.

A gift card can be used in several ways. You can use it to pay for part of a purchase. Suppose you want to buy a $50 pair of shoes and you have a $20 gift card. You can put the entire $20 gift card balance toward the total $50 purchase price, then pay the $30 balance with cash, debit or credit. You can also use a gift card to make multiple purchases of less than the gift card amount until you use up the balance. For example, you might use a $30 Amazon gift card to purchase one book for $10, another book for $12, and as partial payment of $8 toward a third book costing $15, where you pay the $7 balance by credit card.

Gift cards are functionally equivalent to cash, and if you lose a gift card or have it stolen, you can lose the entire value of the gift card. However, some gift cards can be registered online and reported lost or stolen, allowing the remaining balance to be frozen and transferred to a new card. In this way, some gift cards are safer than cash.

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