What Is a Gift Certificate and How Does It Work?
Unpack the essence of gift certificates: what they are, how they work, and how to effectively use them.
A gift certificate is a prepaid financial instrument for purchasing goods or services from a specified merchant or a network of businesses. It serves as an alternative to cash, allowing the recipient to select items they desire within the certificate’s value. This mechanism provides flexibility, making it a popular choice for gifting.
Core Characteristics of Gift Certificates
Gift certificates represent a promise from the issuer to provide goods or services up to a stated value. They operate as store credit and are generally non-refundable and cannot be directly redeemed for cash.
Some state laws mandate cash redemption for small remaining balances, often below a threshold like $5 or $10. This ensures consumers can fully utilize minor leftover amounts rather than being forced into additional purchases. The certificate’s value is deducted from the purchase total at redemption.
Types of Gift Certificates
Gift certificates come in two formats: physical and digital. Physical gift cards are tangible plastic cards, resembling credit cards, often equipped with a magnetic stripe or barcode for in-store scanning. Digital gift certificates, also known as e-gift cards, exist as electronic codes or vouchers sent via email, suitable for online or mobile redemption.
Gift certificates are also categorized by usability: closed-loop or open-loop. Closed-loop certificates are merchant-specific, redeemable only at the issuing store or affiliated businesses. Open-loop gift cards are branded with major payment network logos, such as Visa or Mastercard, and can be used anywhere that network is accepted, offering broader spending flexibility.
Using and Managing Gift Certificates
Redeeming a gift certificate is generally a straightforward process, whether conducted in person or online. For in-store purchases, the physical card is presented at checkout, and its value is applied to the transaction. When shopping online, the unique code or PIN from the digital or physical certificate is entered during the payment stage of the checkout process.
Checking the remaining balance on a gift certificate is also typically simple. Most issuers provide methods such as online portals where the card number and security code can be entered, a toll-free customer service number to call, or the option to inquire directly at the issuing merchant’s location.
Regarding expiration dates and fees, federal law, specifically the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, provides consumer protections. This act stipulates that gift certificates and store gift cards cannot expire in less than five years from the date of issuance or the last time funds were added. It also limits dormancy or inactivity fees, permitting them only if there has been no activity on the card for at least 12 months, and only one fee can be charged per month, provided it is clearly disclosed.
State laws can offer additional consumer protections that supersede these federal minimums, such as prohibiting all fees or mandating longer expiration periods. For instance, some states require merchants to redeem gift card balances for cash if the remaining amount falls below a certain threshold, commonly between $1 and $10.
If a gift certificate is lost or stolen, immediate action is important. Contacting the issuer’s customer service with the gift certificate number and, if available, the purchase receipt, is the first step. While federal law does not mandate replacement, many issuers may offer a replacement, especially if the certificate was registered or if proof of purchase can be provided. Treating gift certificates like cash and keeping a record of their details can aid in potential recovery.