What Is a Gift Card? Types, Uses, and How to Squeeze Every Dollar Out of Them

A gift card is a prepaid payment card loaded with a fixed amount, accepted at specific stores (closed-loop) or anywhere (open-loop). This guide covers how gift cards work, federal expiration protections, fraud prevention, and how to buy them at a discount for automatic savings.

$29 billion. That’s what U.S. consumers plan to spend on gift cards for winter holidays alone, per the National Retail Federation. Gift cards have quietly become one of the most purchased items on the planet, and yet most people using them are leaving money on the table. They forget to check balances. They don’t know their legal protections. And almost nobody buys them at a discount before spending them.

This guide covers everything worth knowing: what gift cards actually are, how the different types work, what federal law says about expiration and fees, how scammers drain them, and the one savings move most guides skip entirely.

What Is a Gift Card?

A gift card is a prepaid payment card loaded with a fixed dollar amount. You buy it, someone spends it, or you spend it yourself. Each purchase draws down the balance. When it hits zero, the card is done.

That’s the basic definition. But the details matter a lot more than most people realize.

Gift cards go by several names: gift vouchers, stored-value cards, e-gift cards (when delivered digitally). The card doesn’t connect to a bank account and doesn’t extend credit. It’s not a debit card in the traditional sense. Think of it as a payment token with a specific spending limit and, often, specific spending rules attached.

Open-Loop vs. Closed-Loop: The Key Distinction

Not all gift cards work everywhere. This is the most important thing to check before buying or accepting one.

Closed-loop cards are tied to a specific retailer. A Target gift card works at Target. A Starbucks card works at Starbucks. Done. If the store has partner brands (Gap Inc. covers Old Navy, Gap, and Banana Republic), the card may work across all of them. But it won’t work at a random grocery store. Closed-loop cards have no activation fees, no payment network logo, and typically can’t be reloaded after the balance runs out.

Open-loop cards carry a Visa, Mastercard, American Express, or Discover logo. That means they’re accepted anywhere that network is accepted, which is essentially everywhere. Some can even be used at ATMs for cash withdrawals. They usually come with a $5 activation fee upfront, and many are reloadable.

Which is better? Closed-loop cards usually have no fees and less expiration pressure. Open-loop cards give you flexibility but can quietly drain through dormancy fees if you forget about them. Based on our platform tracking, the most common complaint we see around open-loop cards is exactly that: someone loads $50, doesn’t use it for eight months, and comes back to find $45 or less.

How Does a Gift Card Work?

You buy the card, money gets loaded, you spend it down. The mechanics under the hood are worth knowing though.

Activation. Physical store gift cards are activated at the point of sale. Buy in-store and the cashier activates it when you pay. Buy online and it activates when payment processes.

Balance checking. Most gift cards have a website, phone number, or app balance check. Keep the receipt. The card number and PIN are your only proof of purchase. Without them, if the card gets lost or drained by a scammer before you spend it, there’s usually no recovery path.

Partial payments. You can use a gift card as partial payment when the card doesn’t cover the full total. The remaining amount gets paid by another method. Many retailers handle this at checkout, though in-store it sometimes requires the cashier to manually split the transaction.

Reloading. Most closed-loop store cards are single-use. Most open-loop cards can be reloaded. Some store cards (like Amazon or Starbucks) reload through the brand’s own app, which is why they double as loyalty and budgeting tools.

The Types of Gift Cards

Not every gift card works the same way. Here’s what’s actually out there.

Retail store cards. Issued by specific retailers, usable only at their locations (physical and online). These are the most common type and drive the bulk of holiday purchases. Department stores like Macy’s and Kohl’s are particularly popular because they work across a wide merchandise range.

Restaurant cards. Works at a specific chain or restaurant family. Starbucks cards function as a hybrid loyalty and payment tool through the app, which is why they’re among the most purchased restaurant cards in the U.S.

Bank-issued prepaid cards. Open-loop cards issued by banks or under Visa/Mastercard/Amex branding. They work everywhere the network is accepted and often carry higher spend limits than store cards.

Gas station cards. Closed-loop for a specific fuel brand. Useful if you fill up at the same chain regularly and want to budget fuel costs or earn rewards on every fill-up.

Entertainment and experience cards. Cards for streaming services, gaming platforms, movie theaters, or experiences. PlayStation, Xbox, Netflix, AMC Theatres. These have become popular gift options for recipients who’d rather pick their own experience than receive a physical item.

Charity gift cards. You purchase a card that lets the recipient donate to the charity of their choice.

87% of consumers plan to purchase gift cards for the holidays and 83% plan to buy them for birthdays, per TSG and Bank of America’s 2024 consumer study. Restaurant and entertainment cards tend to be the most popular for givers who don’t know the recipient’s specific shopping habits.

How People Actually Use Gift Cards

Gift cards were originally pure gift items. That story has changed.

Gifting. Still the primary use case. The recipient gets flexibility; the giver doesn’t have to guess at a specific present. And the numbers back it up: consumers plan to spend $29 billion on gift cards for the winter holiday season alone.

Self-purchasing for savings. This is the angle almost every gift card guide skips. Retailers often sell their own gift cards at a discount through third-party resale platforms like Raise, CardCash, and GiftCards.com. The savings range from 5-20% depending on the store and timing. We track discounted gift card availability across dozens of retailers on our platform, and certain categories, particularly department stores and electronics, have consistently discounted cards throughout the year. Spending $80 on an Amazon gift card worth $100 face value is a cleaner discount than hunting for coupon codes that might not work.

Budgeting. Parents use store cards to give kids a fixed spending limit. Adults use them to cap their own spending at specific retailers. Loading a fixed amount on a grocery store card is crude but surprisingly effective for people who overspend in-store.

Incentives and rewards. Corporate gifting, employee rewards, survey incentives, and loyalty program redemptions all run on gift cards. This is the B2B side of the market, growing faster than consumer gifting as companies realize gift cards are easier to distribute and track than merchandise.

Overspending trigger. Here’s something worth knowing. Research from Blackhawk Network shows that recipients spend an average of $108 beyond a card’s face value when redeeming. Hand someone a $50 gift card and they’ll statistically leave the store having spent closer to $158. Retailers know this. It’s part of why they issue gift cards in the first place.

What most guides miss is that buying discounted gift cards from verified secondary markets is one of the cleanest savings moves available. There’s no coupon code to try, no minimum spend threshold, no expiration window on the deal. You pay less for the card, then spend it at full face value. We’ve tracked the discount depth across hundreds of store listings and the gap holds consistently, especially post-holidays when stores dump excess gift card inventory.

The Benefits of a Gift Card

For givers and recipients alike, gift cards solve a few real problems.

No credit check required. Unlike credit cards, gift cards have no approval process. Anyone can buy one, anyone can receive one. Fully accessible regardless of credit history.

Flexible gifting. You don’t need to know the recipient’s exact taste or wish list. A Sephora card lets them pick their shade. An Amazon card covers books to blenders to same-day delivery.

Budget control. Spend exactly the amount loaded. No interest, no minimum payment, no billing cycles.

Security buffer. You’re spending a fixed amount. Even if the card number gets compromised, exposure is capped at the card’s balance. That’s very different from handing someone access to a full debit card number.

Discount access. For shoppers who buy discounted gift cards through verified resale platforms, it’s one of the cleanest ways to get an automatic percentage off across an entire store without any code required.

Gift Card Expiration and Fees: What Federal Law Says

Under U.S. federal law (the CARD Act of 2009), gift card funds cannot expire for at least 5 years from the purchase date. Dormancy fees can only kick in after 12 consecutive months of inactivity, and even then, only one fee per month is allowed.

That’s the floor. Several states go further. California, Connecticut, Florida, Maine, Minnesota, Rhode Island, and Washington prohibit gift card expiration entirely under state law. California is also raising its cash-redemption threshold to $15 in April 2026, meaning retailers in that state will be required to give cash back for small remaining balances.

Open-loop prepaid cards from banks sometimes have more aggressive fee structures than pure retail cards. Read the terms before assuming a Visa gift card behaves like a Target gift card.

Digital e-gift cards don’t expire in most cases, but terms vary by issuer. The safest approach: redeem as soon as you receive it.

Gift Card Fraud: What You Actually Need to Know

This section matters. A lot.

41,000+ fraud reports involving gift card scams landed with the FTC in 2024, totaling $212 million in losses. For something most people treat as a low-risk product, that’s a staggering number.

The scams work a few ways.

Gift card payment scams. A scammer contacts you pretending to be the IRS, a utility company, tech support, or a relative in trouble. They insist payment must come via gift card. This is the tell. Legitimate institutions do not request gift card payments. Ever. If someone demands you buy gift cards and read them the numbers over the phone, stop immediately.

Card draining. Physical gift cards on store shelves often have numbers visible through the packaging. Scammers record card numbers in-store, then monitor those numbers online. When you buy the card and it activates, they drain it instantly. The card looks untampered. You have no idea until you go to use it.

Resale scams. Buying gift cards from unverified third parties carries risk. Established secondary markets like Raise verify balances before listing, but individual marketplace sellers don’t. A discounted card with an already-drained balance is dead money.

Advice: Buy physical gift cards from the register, not off open peg hooks where packaging can be tampered with. Inspect before purchase. Register the card online immediately after buying. Check the balance the same day. If you receive a card with a zero balance, report it to the retailer immediately with your receipt.

What Happens to Unused Gift Cards?

43% of U.S. adults have at least one unused gift card, per Bankrate’s 2024 survey. The average unused balance is $244 per person, up 30% from $187 in 2023. Add that up across all holders and you’re looking at roughly $27 billion sitting dormant.

From what we see across our platform’s deal tracking, the pattern matches the data. The most common reason cards go unspent: the store feels less relevant by the time someone gets around to using it, the balance is forgotten entirely, or the card gets physically lost.

The practical fix is simple: treat every new gift card like a bill. Spend or redeem within 30 days. If it’s for a store you’ll visit eventually, load it into the retailer’s app so the balance surfaces automatically at checkout.

And if you have old cards you’ll realistically never use? Sell them. Secondary markets will typically pay 70-85% of face value, which beats letting the balance sit dormant until it vanishes.

How to Buy Gift Cards at a Discount

Here’s the section most gift card guides skip entirely.

Verified gift card resale platforms allow you to buy major retailer gift cards at 5-20% below face value. The seller redeems at the discount; you spend at full face value at the store. For stores you shop at regularly, the math adds up fast. Spending $170 to buy $200 in Target gift cards means every dollar you spend there costs you 85 cents.

The savings run deeper in some categories than others. Based on the deals we monitor, department stores and electronics retailers tend to have the most consistent discount depth. Grocery and restaurant cards have thinner margins but still beat coupon hunting on most orders.

Want to stack the savings? Buy discounted gift cards, then use those cards in combination with store sale events. Some retailers (like Kohl’s) also allow stacking a percentage-off code on top of purchases made with gift cards, which compounds the discount. The DontPayFull Chrome extension can surface available discounts at checkout automatically, so you’re not manually hunting across platforms.

Frequently Asked Questions

What is the difference between a gift card and a prepaid card?

A gift card is typically issued for gifting at a specific store (closed-loop) or by a payment network (open-loop) with a fixed initial balance. A prepaid card is a broader category that includes reloadable cards used for everyday spending. All gift cards are technically prepaid cards, but not all prepaid cards are gift cards. The key practical difference: prepaid debit cards are meant for ongoing use; gift cards are designed for fixed-amount spending.

Can gift cards be refunded?

Most retailers won’t give cash refunds on gift card purchases. If you return merchandise bought with a gift card, the refund typically goes back onto the card. Some states require retailers to give cash back for small remaining balances (usually under $5-$10).

Are e-gift cards safer than physical gift cards?

Generally, yes. E-gift cards are delivered digitally and never sit on a store shelf where scammers can copy numbers. They live in your email or an app, making them harder to lose. The main risk with digital cards is phishing: scammers sometimes create fake gift card email templates to trick recipients into revealing codes.

Can I use multiple gift cards in one transaction?

Depends on the retailer. Many stores allow multiple gift cards per transaction, especially online. Others limit it to one per order. Worth checking the store’s checkout policy if you’re splitting a large purchase across several cards.

What should I do if my gift card balance is wrong or missing?

Contact the retailer’s customer service immediately with your receipt, card number, and purchase date. Registered cards are easier to resolve since you have a paper trail. For physical cards drained by a scammer, outcomes vary: some retailers replace the balance; many don’t. Registration matters.

Do gift cards expire?

Under federal law, gift card funds cannot expire for at least 5 years from purchase. Several states prohibit expiration entirely. That said, open-loop prepaid cards from banks may have fee structures that erode the balance over time. Read the cardholder agreement before assuming a card is fee-free.

How do I check my gift card balance?

Most retailers provide a balance check through their website (look for a “Check Balance” or “Gift Card” link in the footer), a phone number printed on the back of the card, or the store’s mobile app. Keep your original receipt as backup, especially for high-value cards.

Sources

1. National Retail Federation: Gift Cards Gain Popularity as Top Choice for Holiday Shoppers (2025)
2. Precedence Research: Gift Cards Market Size Report (2025)
3. TSG and Bank of America: U.S. Consumer Holiday Gift Card Study (2024)
4. Federal Trade Commission: Consumer Gift Card Fraud Data Spotlight (2024)
5. Bankrate: 43% of Americans Have At Least One Unused Gift Card (2024)
6. Blackhawk Network: Consumer Gift Card Preferences and Use Cases Report

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