What Is a Stored Value Card (SVC)?
A stored value card, or gift card, is a type of electronic bank debit card. Stored value cards have a specific dollar value pre-loaded to them. Credit card networks, bank card issuers, and retail merchants provide these cards as a way to provide non-cash payment cards to the public for a variety of purposes. Cards issued by card networks (such as a Visa gift card) can be used anywhere that accepts general use credit cards. Cards issued by merchants can only be used for goods and services from those specific retailers.
- Store value cards—better known as gift cards—function like debit cards specific to a certain retailer or set of retailers.
- There are two main types of stored value cards: closed-loop and open-loop cards.
- While closed-looped cards can only be prepaid and use once, open-loop cards may be reloaded with funds and used continuously.
How Stored Value Cards Work
Stored value cards come in two major categories. Closed-loop cards have a one-time limit, as with Visa, Mastercard, and American Express gift cards, merchant gift cards, and prepaid phone cards. Holders of open-loop cards, on the other hand, may reload these with funds and use them again.
Stored Value Card Versus Debit Card
A stored value card differs from a bank debit card in that a debit card does not have a specific dollar value pre-loaded. Rather, it is a payment card that deducts money directly from a consumer’s checking account when making a purchase. In this regard, its value directly correlates with the value of the attached checking account.
Some banks provide debit card customers the option of overdraft protection. While there is usually a limit on the overdraft protection amount, if a person's checking account balance is at zero and overdraft protection is in place, the banking institution will cover the transactions up to the maximum overdraft protection amount.
Typically, any transaction amounts that exceed the maximum overdraft protection will be subject to high institutional fees. The same types of fees will apply to transactions that are not covered by overdraft protection, which is a costly mistake to consumers using their cards with an account balance of zero. Additionally, many banks have limits on how much money—and how often—consumers can withdraw using their debit cards.
Stored Value Card Versus Credit Card
A credit card may also be used to make purchases in person at a store, over the phone, or online. Unlike a debit card or stored value card, however, a credit card allows the user to carry a balance. In exchange for this privilege of using loaned funds, users often pay interest on an existing balance. Credit cards, which are unsecured loans, may charge higher interest rates than other personal loans, such as auto loans, home equity loans, student loans, and mortgage loans (although rates are generally lower than payday loans).
Unlike closed-loop stored value cards, credit card loans are open-ended. A user can borrow repeatedly as long as they stay below their credit limit and pay at least the minimum amount due on or before the billing due date.