A gift card stores prepaid value for purchases from a specified merchant or through a supported payment network.
A gift card stores value paid in advance for later purchases from a specified merchant or through a supported payment network. It is not a revolving loan, and it usually is not linked directly to the recipient’s deposit account.
| Type | Where it can be used | Important distinction |
|---|---|---|
| Closed-loop card | Issuing merchant or participating group | Merchant controls acceptance and redemption terms |
| Open-loop card | Merchants that accept the named payment network | May have activation, transaction, or cash-access restrictions |
| Electronic gift card | Website, app, wallet, or store using a code | Email or account compromise can expose the credentials |
| Promotional card | Uses specified by the promotion | May have different terms from value purchased by a consumer |
Physical and electronic formats do not determine whether a card is open-loop or closed-loop. The issuer, acceptance rules, and agreement do.
The merchant that sells a card may not be the merchant that ultimately accepts it. For open-loop cards, an issuing institution, program manager, distributor, payment network, and accepting merchant can all participate.
Assume a recipient has a $100 closed-loop gift card and buys an item for $72.40.
| Step | Gift-card effect | Remaining value |
|---|---|---|
| Initial activated value | +$100.00 | $100.00 |
| First purchase | -$72.40 | $27.60 |
The recipient later wants to buy an item costing $35. The card has insufficient value for the full purchase. If the merchant supports split payment, the transaction can use $27.60 from the gift card and $7.40 from another payment method. If split payment is not supported or the cashier enters $35 against the card, the authorization can be declined even though value remains.
The example also shows why retaining the card matters after partial use. The remaining $27.60 stays associated with the card or program record; it is not automatically transferred to the recipient’s bank account.
| Product | Main purpose | Typical funding and use |
|---|---|---|
| Gift card | Transfer prepaid purchasing value to a recipient | Fixed or limited value used at a merchant or network |
| Prepaid Card | Ongoing payment access | Funds may be reloaded and used for purchases, bills, or ATM access |
| Store credit | Merchant refund or customer-account value | Used for later purchases under merchant terms |
| Debit Card | Access a linked deposit account | Each transaction generally draws from account funds |
| Credit Card | Borrow under a revolving agreement | Purchases increase an amount the cardholder must repay |
Possible terms include:
Law can treat purchased gift-card value differently from promotional value. Rules also vary by jurisdiction. Check the current card terms and applicable law rather than assuming that every balance expires, never expires, or can be redeemed for cash.
For covered U.S. gift certificates, store gift cards, and general-use prepaid cards, Regulation E generally requires the underlying funds to remain valid for at least five years from issuance or the last load, as applicable. Dormancy, inactivity, or service fees generally cannot begin until there has been no activity for one year, must satisfy disclosure conditions, and cannot be imposed more than once in a calendar month.
The rule contains definitions and exclusions, and state law can provide additional rights. Loyalty, award, promotional, business-use, telephone-service, and other arrangements may receive different treatment. A printed card expiration date can also differ from the expiration of the underlying funds, in which case replacement procedures may matter.
Gift cards are attractive to scammers because the credentials can be transferred quickly and transactions may be difficult to reverse. Common warning signs include someone asking a consumer to:
Only scammers tell a person to buy a gift card and provide the card number and PIN as payment. If value has been sent, preserve the card, receipt, messages, and transaction details; contact the issuer and appropriate authorities promptly. Recovery is not guaranteed.
For an issuer, selling a gift card usually creates an obligation to provide goods or services later rather than immediate completion of the underlying retail sale. Redemption, expiration, refunds, and unredeemed balances can affect revenue recognition, liability measurement, controls, and disclosure.
The accounting and tax treatment depends on the facts and applicable standards. Businesses should reconcile issued, redeemed, refunded, expired, and outstanding card balances and obtain professional advice for reporting conclusions.
This article provides general financial education, not personalized legal, accounting, tax, or fraud-recovery advice. Gift-card rights and obligations depend on the issuer, transaction, jurisdiction, and current law.