Prepaid gift cards are a staple of the holiday season. They’re easy to purchase and to give as gifts, and show the thoughtful care that goes into selecting exactly what’s right for a friend or family member, without having to worry about buying the wrong fit, color, or model. Best of all, prepaid gift cards beat merely giving money; they’re a way of saying, “don’t spend this on bills—just pamper yourself.”

However, a basic misunderstanding of the way gift cards work may throw those who purchase them as gifts and those who use them down the road for a loop. This holiday season, buy smart, and make sure you know exactly how the gift card you purchase works.

Know What You Are Buying

By law, retailers who sell gift cards are required to disclose any information about how the card works. It’s up to you, however, to read the fine print. Many gift cards contain up-front fees that you’ll have to pay just to purchase the card and activate it for use. Others have per-purchase fees that will ultimately cause your gift recipient to get less bang for the buck.
Most gift cards have an expiration date, so be sure that you and the recipient know when to use the card. When you purchase a gift card, ask the store clerk whether all of the information is contained on the card itself, or if you’ll have to go online or call a customer service number for the full terms.

Consider Going Retail

By and large, the fees required for gift cards issued by credit companies and banks do not apply to gift cards purchased from stores. If you purchase from a bank or credit card company, your card may diminish in value by month, or may take a certain amount of money (a “service fee”) away depending on the types of purchases you make. Department stores and specialty retailers generally do not issue cards with such fees. These cards are also usually redeemable for their cash value, even in cases of expiration or dormancy. The trade-off is that retail cards can only be used at certain stores, while prepaid branded credit cards can be used anywhere, giving your recipient more flexibility.

If you’d prefer the more user-friendly general use prepaid card but want to skip the fees, look into an American Express Prepaid Gift Card. American Express recently announced they were waiving dormancy fees on gift cards, making these a great alternative as the cards provide the flexibility of a prepaid debit card without some of the extra fees that can drain your funds.

Use the Balance

Unlike cash, which eventually becomes change to be used in small transactions, gift cards are very rarely used down to the cent—or even the dollar. Billions of dollars every year are lost by individuals who cannot make purchases that total the exact balance of a card, and few will care to use the card for less than a dollar off of purchases that they eventually make with cash. If you purchase a gift card for a friend, bear this in mind, and make sure you mention to them that the nickels and dimes left on the card are still money they’re free to spend!

When you get down to your last dollar, you can do a “split tender” transaction to ensure you use every last nickel on your prepaid card. Simply request that the cashier charge the full remaining amount on the gift card and then pay any remaining balance due on your purchase with cash or another payment method.

Watch out for Scammers

Gift card scams are all too common these days, and the chief cause of these frustrating thefts are gift cards or certificates left on a display stand in the mall or department store. Scammers can write down the pin numbers, wait for a few days or weeks after the holidays, and call to find out how much money is left on “their” gift card, using the pin and purchase numbers and card expiration date as their proof of purchase. Once they have confirmed that the card has been used, they are free to make purchases using that card or pin number. It’s best to purchase gift cards that are kept behind the counter, out of the sight of scammers and con artists.

Be Careful Buying Online

Should you decide to purchase a gift card, don’t buy them at a discounted rate from websites like eBay or Craigslist.

In fact, it’s probably best not to buy online at all unless the cards are purchased from the actual retailer or from a dedicated reseller with a good track record and guarantee. High-quality counterfeits can be sold online, as well as cards that have already been used. Some people decide to sell cards for much more than the purchasing power of the card, or they will charge a “shipping fee” just to mail it out to you. An alternative to purchasing online is simply to walk into a retail store and purchase from the store clerk.

Buying online can offer a great option, though, if you buy from a dedicated gift card reseller such as GiftCards.com. GiftCards.com guarantees all of their cards, and even offers partially used prepaid gift cards at a discount price, also guaranteed. This can help you get the best deal on a gift card without taking the risk of buying from a lesser-known reseller.

Making the Purchase

All of this information might cause you to pause before purchasing a gift card as a Christmas or Hanukkah present. However, just a little bit of precaution on your part will go a long way to ensure that the gift card you buy is legitimate and worth the price you pay:

• Consider buying a prepaid gift card from a solo retailer to avoid potential fees.
• Do not purchase cards from banks or credit card companies unless you are aware of the fees that may be charged for purchase and for use.
• Be careful if you decide to purchase a card online.
• Inspect the card after purchase to make sure it hasn’t been tampered with, scratched to reveal pin numbers, and that it contains all the stickers that hide sensitive information.
• Ask for a copy of the terms of use, or have the clerk direct you to where this information is located.
• Explain the terms of use to the gift recipient—instruct them to treat the card like cash, and to be aware of their balance and expiration dates.