Prepaid Cards vs. Gift Cards: How is One Different from the Other?

Gift cards and the best prepaid cards are plastic cards that are used to pay for purchases both at merchants and online. Both are considered popular presents as well. Prepaid cards are also safer compared to carrying huge wads of cash wherever you go. The best prepaid cards are also deemed way more convenient than personal checks.

While some people can easily mistake prepaid cards for gift cards (and vice-versa), they have one distinct difference. Prepaid cards can be reloaded with money and used indefinitely. Gift cards on the other hand are designed for one time usage alone. Once all the balance on the gift card has been exhausted, you can no longer use it.

The Lowdown on Prepaid Cards

Technically, prepaid cards are similar to debit cards. Prepaid card users can also load their cards with money repeatedly. Once the money has been loaded successfully, the prepaid cards can be immediately used for purchase transactions and ATM withdrawals.  A PIN will be used to withdraw money from ATMs so it’s safe.

Just like other plastic cards like credit cards, prepaid cards also have a card number and an expiration date printed either on the front and back of the card. Often, prepaid cards are also accepted in the same places (merchants and online) where popular plastic cards like credit and debit cards are accepted and honored.

The money that is loaded or deposited on the prepaid card will become the card’s limit amount. That said, once the balance has been depleted, users won’t be able to use the prepaid card until money will be loaded on the card again. The prepaid card can be used as many times as the user wants as long as money has been loaded on the card.

The Lowdown on Gift Cards

This type of stored value card is loaded with funds and can be used for future discretionary use. A gift card also contains a specific amount of money. Once the amount has been spent, the gift card can no longer be used. Gift cards also have expiration dates (typically, it’s shorter than a prepaid card).

Users have the option to purchase gift cards in different formats. The most popular type is known technically as a closed loop card. Closed loop cards are only designed for use at specific merchants or certain retailers. Typically, this type of gift card will bear the logo and name of the provider.

It is also common for retail groups to allow the same gift cards for use in stores where they are affiliated. There’s also another type of gift card known as open loop cards. Open loop cards are often confused with debit cards since they are reloadable as well. Open loop cards also typically carry a one-time activation fee.

Key Takeaways

  • Both gift cards and prepaid cards are loaded with money. However, the former is designed for one time use while the latter can be used repeatedly as long as money is loaded onto the card.
  • Unlike gift cards, prepaid cards have a feature similar to popular plastic cards like credit and debit cards—they can be used to pay bills, pay for purchases, or to withdraw money from ATMs.
  • Gift cards are designed for use at specific retailers. However, some credit card companies also provide gift cards. Gift cards are also used to purchase certain items, whereas prepaid cards have other uses like purchase payments and ATM withdrawals at affiliated ATMs.
  • Unlike gift cards, prepaid cards are designed for indefinite use as long as money is loaded on the card repeatedly.