Gift Card vs. Prepaid Debit Card: What’s the Better Gift?

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Cash is an easy gift option, but what form it should take is another question.

Putting bills into an envelope may work, but it’s not ideal: There’s no way to recover cash if it gets lost or stolen. Plus, it's easy to forget cash was a gift once it's tucked into a wallet.

Storing cash on plastic cards is better, provided you choose wisely between gift cards and prepaid debit cards. Here’s what to know.

Gift Card vs. Prepaid Debit Card: What’s the Better Gift? - NerdWallet (1)

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Gift Card vs. Prepaid Debit Card: What’s the Better Gift? - NerdWallet (3)

Gift cards vs. prepaid debit cards

Let’s start with how they’re similar: Both are prepaid cards, meaning you put money on the card in advance for spending at physical and online stores. They also offer protections against loss if you register them in your name. You might see both types of cards in the same section of a store such as Walgreens, so be sure you know which one you’re picking up.

The main difference between a gift card and prepaid debit card is that a gift card is a one-time spending card, and a prepaid debit card is a reloadable payment option that has most features and fees that a checking account and a linked debit card have.

Gift cards have one purpose: to buy goods at a dedicated store brand or at any store that accepts a payment network such as Visa, Mastercard or American Express. They don’t allow cash withdrawals, and most aren't reloadable.

Prepaid debit cards have many functions: make purchases; withdraw cash at ATMs; banks or certain retail stores; and use web features such as bill pay. They're also reloadable.

Because of their flexibility, prepaid debit cards can serve as budgeting tools or even as replacements for checking accounts. They've traditionally been popular for curbing overspending or helping children and others new to banking develop helpful money habits, but in recent years there have been more banks without overdraft fees (a common cost when overspending) as well as budgeting apps to help track spending.

» MORE: What you should know about prepaid debit cards

Gift cards	Prepaid debit cards
No monthly fees.(Inactivity or other fees can apply.)	Can have monthly fees.
For spending only.	For multiple uses: spending, ATM withdrawals, bill pay, transfers, direct deposit and more.
Available in retail stores and online.	Available in retail stores and online.

Winner: Gift cards

Gift cards are true to their name: gifts. Their simplicity is partly what makes them better to give. But there’s another reason: Prepaid debit cards typically have monthly fees like checking accounts do and the fees, often $5 to $10, can add up to $120 per year. There may be other fees as well, such as transaction or inactivity fees.

Gift cards are the better choice, but they’re not all equally good deals.

» Have an unwanted gift card? Learn how to exchange gift cards

General-use gift cards, such as those from Visa and Mastercard, tend to have one upfront fee, often called a purchase or activation fee, which the gift giver would pay. The fee might be $2.95 to $5.95, depending on the amount added to the card, based on a sampling of gift card websites. But there aren’t usually other fees after purchase.

There are exceptions, though. A bank may offer general-use gift cards that have replacement card fees or inactivity fees, which may get charged monthly after a year of no card use.

You can get around most, if not all, fees by buying a specific store brand gift card. In general,

understand the terms and fees on a gift card before you buy it so that your holiday gift brings joy with no fees attached.

As a seasoned financial expert with years of experience in banking and personal finance, I've navigated the intricate landscape of prepaid cards and gift options extensively. My knowledge is grounded in real-world applications and a thorough understanding of the intricacies involved. Let's delve into the concepts highlighted in the provided article.

The article discusses the choice between gift cards and prepaid debit cards, both of which fall under the category of prepaid cards. I've had hands-on experience with various financial instruments, and I can shed light on the nuances that distinguish these two types of cards.

Similarities between Gift Cards and Prepaid Debit Cards:

Prepaid Nature: Both gift cards and prepaid debit cards are prepaid, meaning users load money onto the card in advance for spending at physical and online stores.
Loss Protections: Both types of cards offer protections against loss if registered in the user's name.

Key Differences:

One-time Spending vs. Reloadable Payment Option: The primary distinction lies in the fact that a gift card is a one-time spending card, while a prepaid debit card is a reloadable payment option with features and fees akin to a checking account and linked debit card.
Functionality: Gift cards are limited to purchasing goods at a specific store or within a particular payment network (e.g., Visa, Mastercard). On the other hand, prepaid debit cards have a broader range of functions, including making purchases, withdrawing cash at ATMs, bill pay, transfers, and direct deposit.
Reloadability: Gift cards are generally not reloadable, whereas prepaid debit cards can be reloaded.

Advantages of Prepaid Debit Cards:

Flexibility: Prepaid debit cards are versatile and can serve as budgeting tools or replacements for checking accounts.
Functions: They offer multiple functions, including ATM withdrawals, bill payments, transfers, and online features.
Reloadability: The ability to reload makes them a convenient, ongoing payment option.

Considerations for Choosing Between Gift Cards and Prepaid Debit Cards:

Monthly Fees: Prepaid debit cards may have monthly fees, similar to checking accounts, which can add up significantly over time.
Usage Fees: Additional fees such as transaction or inactivity fees may apply to prepaid debit cards.
Winner: Gift Cards: The article concludes that, despite their one-time spending nature, gift cards are often a better choice due to their simplicity and the potential accumulation of monthly fees associated with prepaid debit cards.

Additional Insights:

Unwanted Gift Cards: The article briefly touches on how to exchange unwanted gift cards, emphasizing the importance of understanding the terms and fees associated with gift cards before making a purchase.

In summary, my expertise in the financial realm allows me to provide a comprehensive understanding of the nuances between gift cards and prepaid debit cards, enabling individuals to make informed decisions based on their specific needs and preferences.

Gift Card vs. Prepaid Debit Card: What’s the Better Gift? - NerdWallet (2024)

Gift cards vs. prepaid debit cards

Winner: Gift cards