The Pros And Cons Of Prepaid Gift Cards – Are They Better Gifts Than Cash? | EJ Gift Cards

As the American gift card market has continued to grow, just about everybody has taken notice. Almost all major retailers now offer some kind of gift card to their customers, for good reason.

Gift cards allow retailers to make immediate profits on purchases, and provide consumers with a convenient, cost-effective method of gift-giving. It’s a win-win – and the market for gift cards is only continuing to grow as digital gift cards and other innovative technologies are developed.

This growth in the gift card industry has proven to be very beneficial for gift card processors like the Blackhawk Network, and the popularity of gift cards did not go unnoticed by large banks and card processing companies like VISA and MasterCard, who decided that they wanted a piece of the pie for themselves.

Enter the world of prepaid gift cards, or, in industry parlance, “open-loop” gift cards. These gift cards are issued by individual banking institutions, and co-branded by credit card companies like VISA, MasterCard, and American Express.

In essence, these pre-paid gift cards bridge the gap between retailer “closed-loop” gift cards and cash gifts, providing consumers with a simple way to give a gift that can be spent like cash, but with a number of additional benefits – such as fraud protection – that can’t be obtained with a simple cash gift.

And this investment in the industry has paid off. Bank-issued prepaid gift cards are extremely popular with consumers and can be purchased at just about every major retailer, as well as online at multiple gift card vendors.

This growth has also been driven by businesses. Many businesses have realized that prepaid gift cards offer a viable alternative to paper checks – for customer rebates, loyalty programs, and trade-in programs. Companies like T-Mobile used to offer customers paper checks for phone trade-ins and other rewards programs, but are now almost exclusively using prepaid gift cards.

By the numbers, the amount of spending done with prepaid gift cards backs up their popularity. In 2014, consumers spent more than $200 billion on products purchased with prepaid gift cards – or about 5% of total spending for the year.

But though prepaid gift cards have proven popular, some people are still a bit in the dark about the benefits – and drawbacks – of these unique methods of payment. Why not just give cash or a check? Why bother investing in a prepaid gift card at all? What are the advantages of doing so?

To answer your most pressing questions about prepaid gift cards, we’ve put together this list of the pros and cons of prepaid gift cards. After reading this article, you’re sure to have a better idea of both the advantages and disadvantages of using prepaid gift cards, and you’ll be able to make a smart purchasing decision.

The Pros Of Prepaid Gift Cards

Retailer Gift Cards

Prepaid gift cards are popular for a reason – they offer numerous advantages that both retailers and consumers can enjoy. Let’s take a look at these now.

  • Easy to purchase at almost every store – Just about every major retailer now offers prepaid gift cards for purchase, making them a very convenient purchase. You can choose from a variety of pre-loaded dollar amounts, and all you have to do is bring them to the checkout line, pay, and get them activated. Because prepaid gift cards are so convenient and widespread, they’ve become very popular as gifts, often replacing retail gift cards completely.
  • Issued by multiple major credit card companies – One great aspect of prepaid gift cards is how safe they are to buy. Retailer-based “closed-loop” gift cards can often be a risky purchase if the company you’ve purchased them from is in trouble – bankruptcy could mean that the card you purchased is, effectively, worthless. 

    Prepaid gift cards, on the other hand, are issued by major banks in partnership with gigantic credit card companies like VISA, MasterCard, and American Express. These financial institutions are unlikely to run into any major financial difficulties in the near future, so you don’t have to worry about losing the value of your prepaid gift card.

  • Works just like a credit card, and can be used anywhere – Prepaid gift cards are especially popular among people who don’t have bank accounts, or don’t use debit cards or credit cards. This is because they can be purchased with cash, but used just like a debit card or credit card – and this includes online purchases. 

    Because of this, prepaid gift cards are especially popular gifts for teenagers and younger kids who want to shop online – but can’t, because they simply don’t have a credit card or a debit card of their own that they can use. A prepaid gift card from an issuer like MasterCard or VISA can allow these individuals to make use of online services that they may otherwise have missed out on.Prepaid gift cards can also be used for in-person purchases in the same manner that any other gift card or debit card would be used, making them a convenient way to carry around quite a bit of cash – while reducing the risk of theft.

  • Can be customized for the occasion – VISA and MasterCard both offer card customization services for prepaid gift cards that are purchased online, making them a great choice if you’re looking to commemorate a special occasion, and make the recipient of the card feel special. 

    This actually addresses one very common complaint about both gift card and cash gifts. Many consumers still feel that these gifts are somewhat “impersonal”. However, a customized prepaid gift card can be personalized for just about any occasion, with a unique picture, caption, or message for the recipient.

  • Offers ultimate flexibility for recipients – Prepaid gift cards represent a fantastic blend of the flexibility of cash, and the convenience of a credit card. Retail gift cards can only be used at the issuing retailer, whereas prepaid gift cards can be used anywhere where credit and debit cards are accepted. Cash can’t be used online, but prepaid gift cards can be used online.` 

    This flexibility makes prepaid gift cards a great choice for anyone who doesn’t live near major retail stores. These individuals may not be able to make it to a retail store like Target just to redeem a gift card, or spend a cash gift. Prepaid gift cards offer them the flexibility of online purchasing – from any retailer they choose. This flexibility is a huge aspect of the popularity of prepaid gift cards.As you can see, there are quite a few good reasons that prepaid gift cards are so popular. But, just like everything else in life, there are drawbacks to prepaid gift cards, and we’ll talk about these below.

The Cons Of Prepaid Gift Cards

Prepaid gift cards have numerous benefits – but there are drawbacks to purchasing these bank-issued gift cards. We’ll go over these now, so that you can gain a better understanding of both the pros and cons of prepaid gift cards.

  • High fees can cut into the value of the card – This is one of the primary criticisms of prepaid gift cards. Retail-based gift cards don’t have activation fees, because the retailer makes money on the sale of the card.However, most prepaid card companies like VISA and MasterCard make very little money on the sale of the actual gift card, so they rely on fees such as activation fees, ATM fees, and recurring monthly charges in order to profit from these prepaid gift cards.

    When they’re added up, these fees can be quite costly – activation fees are usually somewhere around 2-5% of the value of the card, and monthly fees are around $1.99 per month that the card has a remaining balance. There are also some prepaid gift cards out there that charge “per-transaction” use fees, usually of around $1 per transaction.

    All of these fees can add up – and you may find yourself spending the equivalent of $110-$120 for a prepaid gift card. The convenience of such a card may be worth the price for some – but others may prefer a cash gift, or a retail-based gift card.

  • Can’t be turned into cash – Prepaid gift cards are not the same thing as reloadable prepaid cards. Reloadable prepaid cards are issued by banks as an alternative to credit and debit cards, and can be used to withdraw money from ATMs and by using debit-based withdrawals. Essentially, they function just as a bank-connected debit card would.Prepaid gift cards, on the other hand, cannot be turned into cash. This is primarily due to anti money-laundering laws, which restrict the balance of a prepaid gift card to $1000, and prevent them from being used to withdraw cash. If these laws were not in place, it would be very easy for criminals to use prepaid gift cards to “clean” stolen money.

    So the only way to use the balance on a prepaid gift card is to spend it. This isn’t a bad thing – but some gift recipients may want to use their gift to pay bills, or add to their savings accounts – and this can’t be done with a prepaid gift card.

  • Can’t be resold – If you have a bunch of unwanted retail gift cards, you can get rid of them by selling them on an online marketplace like EJ Gift Cards. Gift card buyers are willing to pay a significant percent of the “face value” of a retail gift card, and resell it for a profit. This allows you to get a cash payout for an unwanted gift card.

    However, prepaid gift cards can’t be sold on these kinds of marketplaces. The variety of fees, activation costs, required PINs, and other information make them a poor investment. If you have a prepaid gift card, all you can do is spend it – or hope that you can sell it to a friend or family member if you’re really in need of cash.
  • Watch out for fine print – Prepaid gift cards usually have quite a bit of fine print in their terms & conditions.While the funds on the card might not ever expire, the actual card may expire at some point, and you’ll have to pay an activation fee to receive a new one. Other gift cards charge “non-use” fees after a year, which can dramatically reduce the available balance on a gift card. Combined with high activation fees, monthly fees, and other issues, these terms and conditions can make some prepaid gift cards very frustrating to understand and use.
  • Fees can vary depending on the issuing bank – One of the biggest issues with prepaid gift cards is inconsistency. VISA, MasterCard, and American Express partner with different issuing banks to sell these gift cards, and each one of these banks will have a different set of fees, terms, and conditions.You might buy a prepaid gift card from a store that has a small activation fee as well as a monthly inactivity fee. That’s fine! It gets spent within a month, and you’ve made a great purchase!

    However, you could buy a prepaid gift card online, and get one that has no activation fee, but charges a $1 per-purchase surcharge, and a monthly fee – whether the money is spent or not. Without closely reading the terms and conditions after each purchase, it can be difficult to tell the difference between these cards – leading to confusion and frustration.

    As you can see, there are quite a few reasons that prepaid gift cards may not always be a better gift than cash. However, most of these issues can be dealt with if you choose your prepaid gift card carefully.

    If you are interested in buying a prepaid gift card, make sure to read the fine print, understand the activation fees and other fee structures, and choose an appropriate dollar amount. If you take the time to understand all the terms and conditions, you’re sure to have a much easier time buying your gift.

Sell Gift Cards You Don’t Want At EJ Gift Cards!

Everybody loves gift cards – but sometimes they’re just not the right gift. Most of us probably have a stack of old gift cards lying around that we don’t even use. So don’t waste that money! Sell your unwanted gift cards today at EJ Gift Cards.

We accept a huge variety of retail gift cards – though we don’t accept prepaid, bank-issued gift cards.

Our simple sales process allows you to turn your gift cards into cash. We pay out through PayPal  – you’ll never have to wait around for a paper check in the mail again.

So don’t wait. If you need to turn your old gift cards into cash, EJ Gift Cards is the ideal partner for your needs.