6 Differences Between Prepaid Cards and Gift Cards

by Insight.ng Content Partners

Today’s world now operates digitally and cashless. The introduction of regular cards into the system has promoted the cashless policy, and many people are buying into it. 

However, there are different types of plastic cards invented for different purposes. They have different features and regulations guiding them, but they all serve as a means of payment.

When it comes to giving out gifts, it is now more convenient because of the availability of cards. In this case, you would need to choose between a prepaid card and a gift card. Wait, aren’t gift cards also prepaid cards?

Well, they are different. In this article, I will help you understand the difference between prepaid and gift cards so you can know the best choice for your recipient. Let’s look at what prepaid cards and gift cards are all about.

What are Prepaid Cards?

Prepaid cards are like credit or debit cards issued by financial institutions like banks and credit card firms like MasterCard, American Express, Discover, and Visa. 

They are usually loaded with a certain cash value by the cardholder, which they can use to make payments for online purchases and bills. The physical prepaid is used to make withdrawals at ATMs. Each prepaid card comes with a special set of digits and an expiry date on the front of the card.

However, they can also act exactly like credit cards provided by banks and firms. They work like regular credit cards, which permit the user to manage a specific fund on the card and get a bank statement in their email every month. 

This kind of prepaid card needs to be precisely provided to customers based on collateral, which is required in case the customer refuses to refund.

How Prepaid Cards Work

As the name insinuates, prepaid cards must be loaded with the fund through a digital check, cash, or credit card before they are used. 

The cardholders can not spend more than the fund previously loaded on it. You won’t be able to use it if the price for a single item you want to purchase is more than your card balance.

All prepaid cards have the logo of a finance firm like MasterCard, American Express, Visa, or Discover. This logo makes them eligible to make payments wherever credit cards can be used.

There are no sensitive details written on the card compared to credit cards. If you lose the card, you only lose the current balance and nothing more.

  prepaid card sample

What are Gift Cards?

Businesses mostly issue gift cards to make payments convenient for their customers. Examples include Amazon gift cards, Steam gift cards, Sephora gift cards, and many others. 

You can use these cards to purchase items from the specific store that issued them. They come with a certain fund; many are non-refundable, and a few are refundable.

There are different types of gift cards, including open-loop gift cards and closed-loop gift cards.

Open Loop gift cards are accepted anywhere that recognizes them to purchase any products. They can be credit cards, debit cards, or prepaid cards, and examples include Visa cards, MasterCard, etc.

Closed Loop gift cards, on the other hand, are strictly used at the store of the brand that produced them or affiliated retail stores. Examples are Google Play cards, eBay gift cards, Apple gift cards, iTunes gift cards, etc.

How Gift Cards Work

Every gift card does come with a unique number in a set of digits, a barcode, an encoded chip, or a magnetic stripe. The unique number is called a gift card number and always has a certain dollar value. The cards get their unique numbers from the gift card database system.

At the point of redemption, the database will receive the unique digits and provide information about the specific amount on the card. After completing a purchase, it will affect the amount on the card and store the latest balance.

In Nigeria, most gift card holders prefer to sell their gift cards on a trading platform, and it is advisable to get the best gift card trading app to do this for you.

gift card sample

Differences Between Prepaid Cards and Gift Cards

Prepaid and gift cards are similar in that they are both useful for making purchases, but there are some key differences between them. The following are the main differences between prepaid cards and gift cards;

  • Prepaid cards can have their funds reloaded after they have been used, whereas gift cards cannot be reloaded and are only usable until the initial loaded amount is spent. However, some merchants now offer reloadable gift cards as well.
  • Prepaid cards typically have monthly charges, but gift cards do not. 
  • Not every gift card is accepted at all retail stores, but prepaid cards are generally accepted at every retail store.
  • Gift cards have a preset amount of money, while you can load prepaid cards with any desired amount.
  • Prepaid cards allow for the withdrawal of funds from ATMs, while you can’t use gift cards at ATMs.
  • When using prepaid debit cards, remember that some may have extra fees for certain features. These may include sign-up, monthly, and reload fees, which can be inconvenient when giving gifts.

Pros of Prepaid Debit Cards

  • They are acceptable everywhere: Prepaid debit cards, when purchased, can be used at any store to make payments.
  • Works like a debit card: Prepaid cardholders can choose to refund the card if they exhaust the one on it. However, no savings account is attached to the card, and prepaid cards can be issued as ATM cards.

Cons of Prepaid Debit Cards

Certain additional charges: some prepaid cards are charged account creation fees or monthly charges. Gift cards only require one to pay for the amount it is funded with.

Pros of Gift Cards

  • Readily available: Gift cards are available for purchase at many places because of their popularity. They can easily be used as a payment method as well.
  • No additional fees: Once you buy a gift card from a specific store, you don’t need to worry about additional fees. Any other fee, like a maintenance fee or inactivity fee, will be mentioned in the terms and conditions.

Cons of Gift Cards

Limited purpose: They are strictly redeemed at a certain store. Although it’s a great gift idea, you may end up gifting your recipient a gift card to a store they don’t patronise.

prepaid and gift cards

Prepaid Cards vs Gift Cards: Which Makes the Better Holiday Gift?

When it comes to gifting the ideal holiday gift, you may need to go for a card that is pragmatic and convenient to use for your recipients.

You may want to go for a gift card because you need to be intentional about what the person does or likes. An example is getting a Steam gift card for your gamer friend. Also, there won’t be additional fees on your gift card purchase.

Gift cards are also ideal gifts for kids instead of prepaid cards, as there won’t be unnecessary pressure on parents to teach them how to use them.

You can consider prepaid debit cards if your recipient stays overseas. They are a great way to transfer money internationally. It’s also a good choice if you can’t ascertain the store your recipient loves to shop at.


Prepaid cards and gift cards were both invented mainly to make purchases easy. Although they function independently and differently, their use depends on the holder. This article has explained everything you need to know about prepaid and gift cards. With gift cards, you can get yourself some cool cash. If you are curious about the rate of any gift card, you can use the gift card rate calculator online.

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