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Gift card

Gift card is a money term you need to understand. Here’s how it works.

What is a gift card?

A gift card is a prepaid card that can be used by anyone to whom it is given. Although a gift card usually looks like a credit card, no debt is incurred with its use. Gift cards have replaced the old paper gift certificates and are the perfect present for occasions when you are not sure what to buy.

Deeper definition

Gift cards with the logo of a major credit card on the front, such as a MasterCard, Visa, American Express or Discover, can be used at any store that accepts these cards. Some cards can be used at stores owned by the same parent company. For example, Gap Inc. owns Gap, Old Navy, Banana Republic and Athleta, so a Gap Inc. gift card is good at any of the stores it owns.

Some gift cards can be used at only a single merchant. Businesses like Target, Amazon, Best Buy and Macy’s offer cards that can be used to purchase only their goods. Some gift cards charge an activation fee of around $5. The activation fee is paid when the gift card is purchased. Some gift cards also charge a dormancy fee on cards that have not been used in one year.

Some gift cards act like cash. If they are lost or stolen, the funds are in the hands of whoever has the card. Other cards can be registered online and can be reported as lost or stolen. Once that happens, the balance is frozen and transferred to a new card. Starbucks and Crate & Barrel are two retailers that encourage customers to register gift cards and will issue new ones if they are lost or stolen.

If you plan to give a gift card as a present, also give the recipient the card’s activation receipt and a piece of paper with the gift card number, including the extra security numbers that may be on the card. The recipient can more easily replace the card if it is lost or stolen.

If the recipient realizes his card is missing, he should contact the retailer or credit card company immediately. The retailer should be able to freeze the account and issue a new card using the activation receipt or gift card number. Most store cards do not charge a replacement fee, but bank-issued cards may.

Example of a gift card

The person who is given a gift card can use it to pay for part or all of a purchase. Some gift cards have a maximum amount you can load but are reloadable, meaning the recipient can add funds later if he wants. Other gifts cards serve no further purpose once the balance is spent. 

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