Prepaid credit cards can make great gift cards, at least in theory. Major banks and credit cards offer gift cards that allow purchasers to buy prepaid versions of Visa and Amex cards that can be used as cash. Many major banks and several major credit cards offer prepaid gift cards that are marketed as redeemable anywhere that credit cards are accepted, which makes them more flexible than retailer’s gift cards. But it isn’t always that easy.
Credit and bank gift cards fall under the category of “open loop cards”, which means that they can be used at a wide variety of retailers, restaurants, and department stores. The obvious benefit of open loop gift cards is their versatility over retail gift cards that are only redeemable at one store. But there are some strict restrictions that reduce their attractiveness.
Open loop cards are more likely to have expiration dates and to carry activation, service and maintenance fees. Sometimes the banks and credit lenders that provide the gift cards don’t start charging fees for a few months, while others begin charging once the card is used for the first time. Typical maintenance fees range between $2 and $5 dollars each month. More annoying than the fees themselves is the fact that banks and credit companies rarely advertise hidden fees and catch users unprepared. If you use your $50 dollar gift card once in June for a $30 dollar purchase, by January your card could be empty, to your surprise when you try to use it for a second time.
Issues related to transparency and policy declaration for banks and credit companies are presently being reviewed by the Office of the Comptroller of the Currency (OCC), the federal branch responsible for national banks. The OCC is interested in ensuring the disclosure of both fees and policies, and to protect consumers. There have been numerous instances of complaints filed to consumer watch groups by customers who purchased bank and credit card gift cards only to find them impossible to activate, refused by retailers and restaurants and diminished by hidden fees and service charges.
Since prepaid gift cards are routinely given as gifts, it is unlikely that gift card holders will have the original receipt and purchase information that is required by credit companies and banks to troubleshoot non-activated and unresponsive cards. In the case that a prepaid gift card doesn’t work, the receiver is in the awkward position of asking the person who gave it to them for this information, or else the card will go unused, and be a complete waste of consumer money.
Due to the hassles of credit and bank gift cards, many consumer advisors recommend buying retail gift cards instead. These so-called “closed loop” gift cards are usually redeemable at only one retailer, or a corporate group of retailers, which is slightly restrictive in one sense, but they are also far less likely to carry any hidden fees or charges, making them the wiser choice. Closed loop gift cards are also slightly more personalized and indicate that the purchaser was thinking about the receiver and the kind of stores they enjoy in making their decision.
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