What Is a Stored-Value Card?

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 and 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 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.

Stored-Value Card Definition

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.

Unlike a credit card, however (see below), debit cards generally do not allow a user to go into debt, unless thy have opted into overdraft protection (more below) on their account. In addition, the cards often have daily limits for cash withdrawals (i.e. consumers might not be able to withdraw large sums of money with a debit card, even if they have the money in their account). At times, if a user has signed up for overdraft coverage, it may be possible to tap into a limited credit line after a checking account reaches zero. Overdraft allowance lets the individual continue withdrawing money – similar to a credit card and typically involves related fees and interest.

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.