What Is a Gift Card?
A gift card is essentially a prepaid debit card that holds a predetermined amount of money for various purchases. There are two primary types of gift cards: store-specific cards intended for use at particular merchants, and general-use prepaid cards that can also function as debit cards for cash withdrawals at ATMs.

### Key Points:

• Gift cards are prepaid debit cards loaded with a specific amount for transactions.
• Store gift cards (closed loop) are specific to certain retailers, while general-use prepaid gift cards (open loop) have broader acceptance.
• Some gift cards may allow cash withdrawals at ATMs.
• Closed-loop gift cards are typically not reloadable.

How a Gift Card Works
Gift cards operate as prepaid debit cards with allocated funds for future use. They come in two main variants: open-loop and closed-loop, both usable in both online and physical purchases.

Many gift cards, also called stored value cards, come with specific minimum and maximum loading amounts, offering flexibility for partial payments alongside other methods. To safeguard against losses, registering gift cards online enables balance tracking and freezing capabilities in case of loss. Some gift cards, compared to cash, offer enhanced security measures.

### Additional Insights:
Depending on the card, reloading may incur additional fees.

Closed-Loop Gift Cards
Closed-loop gift cards, often promoted by singular stores, permit purchases exclusively from that particular retailer. While restricted to a single merchant, exceptions exist for affiliated stores under the same ownership.

These cards do not typically entail activation fees and lack a processor’s logo, serving principally as promotional tools for the store. Closed-loop cards generally lack reload options once fully spent, featuring potential expiration dates that urge timely usage.

### Notable Trend:
The global gift card market anticipates a 12% annual growth rate until 2031, as projected by Persistence Market Research.

Open-Loop Gift Cards
Open-loop gift cards, offering broad usability akin to cash or debit/credit cards, cater to multiple merchant acceptance, including online platforms.

Issued by prominent processors like American Express, Visa, and MasterCard, these cards mirror traditional payment options. Reloadable characteristics allow users to add additional funds, often conditioned upon activation fees during purchase.

### Important Note:
Activation fees are commonly around $5 for open-loop cards.

Digital Gift Cards
Gift cards debuted in 1994 and are progressively transitioning to digital formats to incentivize consumer spending, popular among upscale retailers for loyalty rewards.

While digital options are on the rise, physical cards maintain dominance in redemption volumes, showcasing consumer preferences in the market.

Gift Card Scams
As the popularity of gift cards surges, so do scams targeting unsuspecting individuals. With reported scam losses nearing $148 million in a nine-month period in 2021, caution is paramount.

Common scams involve fraudulent requests for gift card purchases as payment or physical tampering to exploit card numbers. Notably, scammers find particular interest in Target gift cards for illicit gains.

### Safety Tip:
Exercise vigilance by only engaging in gift card transactions with trustworthy entities to safeguard against potential scams.

The Bottom Line
Gift cards serve as convenient options for retail transactions, whether gifted or earned through loyalty programs. Understanding the nuances between open and closed-loop cards, potential fees, and security risks is essential for a seamless user experience, especially in the face of prevalent scams during heightened shopping periods like holidays.