We may earn a commission for purchases through links on our site, Learn more.
- Gift cards are prepaid forms of money used to purchase goods or services.
- Retailers use gift cards to promote their business and encourage repeat customers.
- Employers offer gift cards as rewards or incentives for employees.
- Store gift cards are only usable at specific retailers, while open loop cards can be used anywhere major credit cards are accepted.
- Closed loop gift cards are typically non-reloadable and can only be used at specific stores or businesses.
- Some gift cards may have expiration dates, fees, or inactivity charges that reduce their value.
- Certain gift cards allow ATM withdrawals, but may incur additional fees.
- Gift cards can be sold for cash, though often at a discounted rate.
What Are Gift Cards Used For?
Gift cards are a popular and convenient payment method that allow people to purchase goods or services without using cash or credit cards.
They are essentially a prepaid form of money, which can be used in various retail stores, online platforms, or even at specific locations. Gift cards are versatile and have become an essential part of modern shopping and gifting culture.
In this blog post, we will explore what gift cards are used for, how they work, and why they are so widely used by different groups of people. We will also touch on the various types of gift cards available and considerations when using them. So, let’s dive into everything you need to know about gift cards.
Who Uses Gift Cards?
Gift cards are used by a wide range of individuals, businesses, and organizations. Below are some of the main groups who commonly use gift cards.
Retailers: Promoting Business and Customer Loyalty
One of the primary reasons retailers use gift cards is to promote their business and attract more customers. They often offer gift cards as part of a promotional campaign or as a way to reward loyal customers.
When a customer purchases a gift card, the retailer secures money upfront, which can then be used for future purchases. This increases the likelihood of return business.
Gift cards also help retailers reach new customers. Many people receive gift cards from friends or family members, and these new customers may decide to keep shopping at the store even after using the gift card.
Retailers often use gift cards as a marketing tool to encourage spending during peak shopping seasons, such as holidays or back-to-school sales.
Employers: Rewarding Employees
Employers use gift cards as a form of incentive and reward for employees. These cards can be used to recognize accomplishments, celebrate milestones, or provide a simple token of appreciation. Offering gift cards instead of cash rewards can be more personal and convenient, as employees can choose what they want to buy.
Many companies use gift cards to incentivize employees for hitting sales targets, meeting deadlines, or completing specific projects. Employers might offer gift cards from popular stores, restaurants, or even general-use cards like Visa or Mastercard, which give employees more flexibility in how they spend their rewards.
Individuals: Buying for Themselves or Others
Gift cards are also widely used by individuals. Many people use gift cards to buy items for themselves or as gifts for others. Gift cards are especially popular during holidays, birthdays, and special occasions. The appeal of a gift card is that it allows the recipient to choose what they want, which takes the guesswork out of gift-giving.
Individuals also use gift cards when they want to manage their budget or control spending. A gift card can act as a set limit on how much can be spent, which helps prevent overspending. For example, a person might use a gift card to shop for groceries, clothing, or entertainment.
How Do Gift Cards Work?
Gift cards work by preloading a set amount of money onto the card, which can then be used to make purchases at a specific store or group of stores. The key to understanding how gift cards function is recognizing the different types available.
Store Gift Cards
Store gift cards are perhaps the most common type. These cards are typically issued by a particular retailer and can only be used at that store or chain of stores. When you buy a store gift card, you are essentially buying a prepaid debit card that can only be used within that retailer’s network.
For example, a gift card from a well-known department store like Macy’s can only be used to make purchases at Macy’s, either online or in-store. Store gift cards are often used as gifts, and they help businesses maintain customer loyalty.
Open Loop Gift Cards
Open loop gift cards are a bit more versatile. These cards can be used anywhere that accepts major credit cards like Visa, Mastercard, or American Express.
With open loop cards, the purchaser can use them at a wide range of stores, both physical and online. These types of gift cards are often referred to as “general use” cards because they offer a great deal of flexibility in where they can be spent.
Open loop gift cards can be especially useful when you are unsure of the recipient’s favorite stores or when you want to give them the freedom to choose their own gift. These cards work similarly to a prepaid debit card, and they are often used for gift-giving or as rewards for employees.
Closed Loop Gift Cards
Closed loop gift cards are similar to store-specific gift cards but have a few additional features. Like store cards, they can only be used at a particular store or group of stores, but they are often non-reloadable. This means that once the money has been spent, the card cannot be reloaded with additional funds.
Some examples of closed loop gift cards include specific retailer cards like Amazon, Walmart, or Starbucks. These cards are not as flexible as open loop cards, but they can be an excellent choice when you want to limit spending to a particular business or brand.
What Are Some Gift Card Considerations?
Before purchasing or using gift cards, it’s essential to keep a few key considerations in mind. Although gift cards can be convenient, they may come with some limitations.
Expiration and Fees
One of the most important things to note about gift cards is that some may have expiration dates or maintenance fees. For example, some gift cards might become inactive after a period of non-use, and the cardholder may be charged a fee for inactivity.
Always read the terms and conditions of a gift card before purchasing to understand any potential expiration dates or fees.
It is also important to check whether the card has any fees for activating or using the gift card. Some cards charge a one-time activation fee or a monthly service fee if the card is not used for a long time.
Using Gift Cards to Withdraw Cash
Certain gift cards, especially open loop cards issued by major credit card networks like Visa, Mastercard, and American Express, allow you to withdraw cash from ATMs. This feature makes the card even more versatile, as it acts like a debit card.
However, it’s essential to be aware of any associated fees that might come with withdrawing cash from an ATM, as these can sometimes be high.
If you plan on using a gift card to withdraw cash, make sure to check the terms and conditions, as well as the withdrawal limits and fees, before using the card.
Selling Gift Cards for Cash
Another consideration is the possibility of selling unused gift cards for cash. There are websites and platforms that allow you to sell or exchange your gift cards for a percentage of the card’s value in cash or another gift card.
This is a popular option for individuals who receive gift cards for stores they don’t frequent. By selling the gift card, you can get cash or purchase a more useful card.
However, it’s important to note that selling gift cards online often comes with fees, and the buyer will usually offer less than the full value of the card. So, it may not be a perfect solution, but it can be a good option if you need cash quickly.
Inactivity Fees
Many gift cards may be subject to inactivity fees if they are not used for a certain period of time. For example, some cards may charge a monthly fee if the cardholder doesn’t make any transactions within six months or a year. This can reduce the overall value of the gift card if it is not used promptly.
Always check the terms and conditions of the card to see if it has any inactivity fees or other charges that could impact the value of the card over time.
What Are Gift Cards Called in Other Countries?
Gift cards are not only used in North America but also in other parts of the world. In some countries, they may have different names.
In North America, gift cards are often referred to as gift certificates, particularly when the cards are used as a form of prepaid credit at specific stores. The term “gift certificate” can be used interchangeably with “gift card” in many cases.
In the UK, gift cards are commonly called gift vouchers or gift tokens. These terms are used similarly to describe prepaid cards that can be used in a particular store or chain. The names may vary, but the concept of a gift card remains consistent across regions.
Frequently Asked Questions
Here are some of the related questions people also ask:
What are the benefits of using gift cards?
Gift cards offer convenience, budgeting control, and the flexibility to choose purchases, making them a popular choice for both gift-giving and personal use.
Can I use a gift card for online shopping?
Yes, most gift cards, especially store-specific and open loop cards like Visa or Mastercard, can be used for online purchases, as long as the retailer accepts them.
Do all gift cards have an expiration date?
Not all gift cards have an expiration date, but some may charge inactivity fees if not used within a certain period. It’s important to check the terms and conditions before purchasing.
How do I know if my gift card has fees?
Always read the terms and conditions of the gift card. Fees, such as activation fees or inactivity charges, are typically disclosed there.
Can gift cards be used internationally?
Some open loop gift cards, like those from Visa or Mastercard, can be used internationally, while store-specific cards are usually restricted to certain countries or regions.
What is the difference between an open loop and a closed loop gift card?
Open loop gift cards can be used at various locations, while closed loop gift cards are limited to specific retailers or businesses and are often non-reloadable.
Can I sell my gift card for cash?
Yes, there are platforms that allow you to sell unused gift cards for cash, but be aware that they may offer less than the full value of the card.
Are gift cards refundable?
Most gift cards are non-refundable, especially once they have been used or activated. It’s always best to confirm the refund policy before purchasing.
Can I use a gift card to withdraw cash from an ATM?
Some open loop gift cards, like those from Visa or Mastercard, can be used to withdraw cash from ATMs, though this may incur additional fees.
The Bottom Line
So, what are gift cards used for? Gift cards are incredibly versatile tools that are used by retailers to promote their businesses, by employers to reward employees, and by individuals to purchase goods or give gifts to others.
They are a convenient way to shop, offering flexibility and choice, whether it’s a store-specific card or a more general open loop card.
When using gift cards, it’s essential to keep in mind their potential fees, expiration dates, and restrictions. By understanding how gift cards work and considering these factors, you can ensure that you’re making the most of this convenient form of payment.
Whether you’re buying a gift, rewarding an employee, or managing your own budget, gift cards are a useful tool that continues to be a part of everyday life.