Gift Cards: Definition, Types, Fees, and Scams to Avoid

Key takeaways
* A gift card is a prepaid (stored-value) card loaded with a set amount for future purchases.
* Closed-loop (store) cards work only at a specific retailer or affiliated brands; open-loop cards (Visa, MasterCard, AmEx, Discover) work wherever the network is accepted.
* Open-loop cards may allow ATM cash withdrawals and are often reloadable; closed-loop cards usually are not.
* Gift cards can have activation, reload, monthly or dormancy fees, and sometimes expiration dates.
* Scammers increasingly target gift cards—never use them to pay strangers or share card numbers.

What is a gift card?
A gift card is a prepaid payment card that holds a monetary balance for purchases or other transactions. They function like debit cards funded in advance and can be physical plastic or digital codes delivered by email or text.

How gift cards work
* Issuance: A merchant or payment network sells a card preloaded with funds within a minimum–maximum range (for example, $10–$500).
* Use: Cards are redeemed until the balance reaches zero. They can be used online or in-store depending on the card type.
* Registration: Many cards can be registered online to track balances and freeze funds if the card is lost or stolen.
* Split payments: You can often combine a gift card with cash, debit, or credit to cover a larger purchase.

Types of gift cards
Closed-loop (store) cards
* Usable only at the issuing retailer or its affiliated brands (e.g., cards valid at all brands owned by the same company).
* Typically display the merchant’s logo, not a payment network logo.
* Usually non-reloadable and may include expiration dates or limitations.
* Commonly used for gifts, registries, and in-store promotions.

Open-loop (network) cards
* Issued on payment networks (Visa, MasterCard, American Express, Discover).
* Accepted at any merchant that accepts those networks—similar to a prepaid debit card.
* Often reloadable and can sometimes be used to withdraw cash at ATMs.
* May require an activation fee (commonly around $5) and can have other service or reload fees.

Digital gift cards
* Delivered electronically as codes or within apps.
* Growing in popularity, though physical cards still account for a large share of redemptions.
* Convenient for last-minute gifting and for loyalty program rewards.

Fees, expiration, and protections
* Fees: Activation, reload, monthly maintenance, or dormancy fees may apply depending on the card. Read terms before buying or registering a card.
* Expiration: Some cards or promotional balances may expire; others are valid until depleted. Check the issuer’s policies.
* Consumer protections: Registered cards can often be replaced if lost or stolen. Open-loop prepaid cards may have additional consumer protections under financial regulations.

Common scams and how to avoid them
Typical scams
* Payment-demand scams: Scammers instruct victims to buy gift cards and provide card numbers as the “payment” method.
* In-store tampering: Criminals tamper with display cards or record card numbers so they can drain funds after purchase.
* Phishing or social-engineering attempts to obtain card numbers via phone, email, or text.

How to protect yourself
* Never pay a person or business you don’t know with a gift card.
* Refuse requests to pay officials, tech support, debt collectors, or strangers with gift cards.
* Inspect physical cards for signs of tampering before purchase (damaged scratch-off areas, stickers over numbers).
* Register cards online when possible and keep receipts until balances are verified.
* Check balances soon after purchase and report theft or suspicious activity immediately.

Frequently asked questions
Can I withdraw cash from a gift card?
Only some open-loop cards allow ATM cash withdrawals. Closed-loop (store) cards do not.

Do gift cards expire or have fees?
Some do. Activation and reload fees are common on open-loop cards. Closed-loop cards may have expiration dates or be non-reloadable. Always read terms.

Are gift cards safe?
They can be safe if handled like cash—register them, keep receipts, and never share numbers with unknown parties. Scammers often target gift cards, so vigilance is required.

Bottom line
Gift cards are convenient prepaid payment tools for gifting and purchasing. Understand whether a card is closed-loop or open-loop, review fees and expiration rules, register cards when possible, and follow basic safety practices to reduce the risk of loss or fraud.

Sources
* Consumer Financial Protection Bureau (CFPB) — gift card rules and guidance
* Federal Trade Commission (FTC) — reports on gift card scams
* Industry market research on gift card usage and trends