How Gift Cards Work: Activation, Use, and Balances

Gift cards are a widely adopted payment method, offering a convenient alternative to cash or traditional credit and debit cards. These prepaid instruments allow individuals to load a specific monetary value onto a card for future purchases. Functioning as a form of stored value, gift cards represent a commitment from the issuer to provide goods or services up to the loaded amount.

Understanding Gift Card Types

Gift cards primarily fall into two distinct categories: closed-loop and open-loop cards. Closed-loop gift cards are issued by specific merchants or retailers and are redeemable only at that issuer’s locations or affiliated businesses. For example, a gift card from a particular coffee shop can only be used at that chain’s stores.

Open-loop gift cards, conversely, are issued by financial institutions or major payment networks, such as Visa, Mastercard, or American Express. These cards function similarly to debit or credit cards and are accepted wherever the associated payment network is honored. While open-loop cards provide greater flexibility for consumers, they may involve higher processing fees for businesses compared to their closed-loop counterparts.

Adding Value to Gift Cards

The process of adding value to a gift card, often termed “activation,” makes the card usable for purchases. When a gift card is purchased, the buyer pays the merchant upfront for the desired value, which can range from a fixed denomination to a custom amount. This payment is collected at the point of sale, whether in a physical store or online, and the funds are then linked to the card’s unique identifier.

Activation serves as a security measure, preventing unauthorized use or theft of the card’s value before its legitimate purchase. The process involves scanning the card at the checkout terminal or entering a unique code online, which then registers the monetary value to that specific card. Without this activation step, the gift card holds no value and cannot be used for any transactions.

Using Your Gift Card for Purchases

Once a gift card has been activated and loaded with value, it can be used to purchase goods or services. In a physical retail setting, the process mirrors that of using a debit or credit card; the consumer presents the gift card at checkout, and it is swiped, inserted, or tapped on a payment terminal. For transactions requiring a Personal Identification Number (PIN), the consumer enters it to authorize the deduction from the card’s balance. The point-of-sale system then processes the transaction, subtracting the purchase amount from the card’s stored value.

For online purchases, consumers enter the gift card number and a security code, often found on the back of the card, into the designated fields during the checkout process. The e-commerce system verifies the card’s validity and available balance, then deducts the purchase amount. If the purchase exceeds the card’s balance, most systems allow for a split payment, where the remaining amount can be covered using another payment method, such as a credit card or cash.

Managing Gift Card Balances and Expiration

Consumers can monitor their gift card balances through several convenient methods, including checking online via the issuer’s website, calling a customer service number provided on the card, or inquiring at the merchant’s physical location. When a gift card’s balance is insufficient to cover a purchase, it is common practice to combine the remaining balance with another form of payment to complete the transaction. This allows consumers to fully utilize the value on the card without losing any residual funds.

Regarding expiration dates, federal law provides consumer protections. Under the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, gift cards cannot expire less than five years from the date they were activated or the last date funds were loaded onto the card. While state laws may offer greater protections, such as prohibiting expiration dates entirely, the federal five-year minimum serves as a baseline. Dormancy or inactivity fees are restricted; they cannot be charged unless there has been no activity on the card for at least 12 months, and only one fee per month is permitted, provided it is clearly disclosed.