How to Send Money With a Gift Card: What You Should Know

Using gift cards to send money to another individual or to convert their value into spendable cash can seem like a straightforward solution, but it often involves indirect methods. While a gift card functions as a form of payment, its primary design is for purchasing goods or services, not for direct money transfers. Understanding the various types of gift cards and their inherent limitations helps clarify the pathways available for converting their stored value into a more flexible form.

Types of Gift Cards and Their Limitations

Gift cards are broadly categorized into two main types, each with distinct features that affect their utility for money transfer. Closed-loop gift cards are issued by specific merchants and can only be used for purchases at those particular stores or their affiliated brands. Examples include cards from major retailers or restaurant chains. These cards are highly restrictive, meaning their value cannot be directly converted to cash or transferred to a bank account.

Open-loop gift cards, conversely, are branded by major payment networks such as Visa, Mastercard, Discover, or American Express. These cards function more like prepaid debit cards and are accepted wherever the respective network’s cards are honored, including online and brick-and-mortar stores. While offering greater flexibility than closed-loop cards, they are still not designed for direct person-to-person money transfers. However, their widespread acceptance makes them more amenable to conversion methods.

The fundamental distinction lies in their underlying financial infrastructure. Closed-loop cards operate within a proprietary system, limiting their use to the issuer’s ecosystem. Open-loop cards, by contrast, leverage the established payment processing networks, allowing for broader transactional capabilities.

Converting Gift Card Value for Transfer

One common approach to converting gift card value is by selling the cards on online marketplaces. Platforms like CardCash or Raise allow individuals to list their unwanted closed-loop and open-loop gift cards for sale. Sellers typically receive a percentage of the card’s face value, often ranging from 70% to 90%, depending on the merchant’s popularity and the card’s demand. Payouts from these platforms are commonly issued via electronic transfers such as PayPal or direct bank deposits, providing a way to monetize the gift card’s value.

Open-loop gift cards offer more direct avenues for accessing their funds due to their functionality resembling a debit card. These cards can be used to pay various bills directly, such as utility payments or online subscriptions, thereby freeing up cash that would otherwise be used for those expenses. Some open-loop cards, if they are PIN-enabled and registered, may allow for cash withdrawals at ATMs, though this often incurs a fee, typically ranging from $2.00 to $3.50 per transaction. Before attempting an ATM withdrawal, it is important to check the card’s terms and conditions for this feature and any associated fees.

Another indirect method involves using an open-loop gift card to make purchases of goods that can then be resold for cash. This approach carries inherent risks related to the resale market’s volatility and the time required to complete the transaction. While some peer-to-peer payment applications may accept open-loop gift cards, many require a linked bank account or traditional debit card for funding, limiting direct transfers. Using gift cards to purchase money orders is generally restricted by most vendors, including postal services and retail stores, due to fraud prevention.

Key Considerations and Potential Risks

When converting or transferring gift card value, various fees can reduce the net amount received. Open-loop gift cards may carry activation fees upon purchase, typically ranging from $3.95 to $6.95, and some may have inactivity fees if the card is not used for a specified period, often after 12 months. Selling gift cards on resale platforms also incurs a percentage reduction from the face value. ATM withdrawals, when available with open-loop cards, are also subject to fees from both the card issuer and the ATM operator.

Using gift cards for money transfer introduces several security vulnerabilities and risks. Gift cards offer limited consumer protection compared to bank accounts or credit cards; lost or stolen cards may not be replaceable, and unauthorized use often results in a permanent loss of funds. Scams frequently involve requests to pay with gift cards, such as imposter scams where fraudsters pose as government agencies or utility companies demanding immediate payment. Be cautious of any request for payment via gift card.

The irreversibility of gift card transactions is a significant consideration; once the value is spent or transferred, there is no mechanism for chargebacks or reversing the transaction. This lack of recourse leaves consumers with little protection if a transaction goes awry or if they fall victim to fraud. While most individuals will not face tax implications from selling a single gift card below its face value, selling gift cards for a profit, especially at scale, could be considered taxable income by the Internal Revenue Service. Consult with a tax professional to understand any specific obligations.