Gift Credit Cards

A gift credit card sounds like a lovely idea - it is just like giving cash, or a gift certificate, but unlike a gift certificate it can be used anywhere, and unlike cash, it can be sent through the post, and embossed with a personalised message. Gift credit cards are increasingly popular, but I must return to my regular due diligence refrain; when it comes to gift credit cards - make sure you read the fine print!

What is a Gift Credit Card?

A gift credit card is issued by a regular credit card company, like Visa, Mastercard, or Discover, or perhaps by a store, although strictly speaking that would be a gift store card rather than a gift credit card.

Actually, the name "gift credit card" is a bit of a misnomer, because these cards are not actually credit cards. Gift credit cards are "stored value" cards, otherwise known as "debit cards". When you buy a gift credit card for someone, you are doing the equivalent of opening a bank account in their name and getting them a plastic card they can use to withdraw the cash.

There are many benefits to gift credit cards, depending on the issuer. This is why it is very important to read the fine print, because you want to make sure you actually get a gift credit card with the specific benefits you are wanting.

Gift credit cards issued by Visa and Mastercard can generally be used anywhere that a regular Visa card or Mastercard could be used. This includes using gift credit cards to withdraw cash from automatic teller machines, for making online purchases, and to make purchases from merchants located overseas.

Gift credit cards can be very attractive. Most gift credit card issuers offer a choice of personalisation options, including images, colors, and wording.

Gift credit cards can be sent through the mail. Most issuers will replace lost gift credit cards, subject to the usual labyrinthine terms and conditions - have I said "read the fine print" yet?

Particularly for teens, it can be very exciting having their very own credit card. Some would argue that this is not something that should be listed under "benefits", and that getting teens excited about credit cards is the last thing we want to do.

Bear in mind, though, that gift credit cards can't be used to spend money one doesn't have. Gift credit cards are actually debit cards, which encourages the young person to keep tabs on their gift credit card balance and plan their expenditure to fit within the balance available.

Some gift credit cards can be recharged with more money - this makes those gift credit cards a useful way to support college students living away from home, or elderly and sick relatives in need of extra medication on a regular basis.

There can be problems with gift credit cards. Particularly if you haven't - need I say it? - read the fine print.

Some gift credit cards have limited geographical range. While this limitation is often just that they can only be used within the US, there are further complications. American Express, for example, will not ship gift credit cards to the states of CT, HI, NH, RI & VT. Their reason for this, as stated on their website, is as follows:

Restrictive legislation in these five states makes it cost prohibitive for American Express to sell our Gift Cards to the residents of those states.

Compassbank feels the need to point out in its Ts & Cs that the balance on your gift card is not FDIC insured. While the others don't necessarily come out and say it, chances are that the same restriction applies to all stored-value cards from other issuers as well. FDIC insurance covers money deposited with banks, and once it has been charged to a gift credit card, it is no longer deposited with the bank.

This is not so much of an issue if the gift card comes from an issuer who will replace a lost gift credit card - but not all of them will.

I could go an at length about the nasties that lurk in these terms and conditions, but you can read them for yourself when you research your gift credit card.

The final issue I will raise when it comes to gift credit cards is the issue of cost.

Most gift credit card providers charge quite hefty fees. They will charge a fee to issue the card, a shipping and handling fee, a fee to replace a lost or stolen gift credit card, and many of them will also start charging a monthly fee if the money is not spent within a few months of the gift credit card being issued.

Make sure you read the terms and conditions carefully when you buy or are given a gift credit card, to find out what the hidden fees and charges might be.

Gift Credit Cards - The Bottom Line

I don't want to put you off from making use of gift credit cards with all this doom and gloom about terms and conditions, problems, fees and possible losses.

A gift credit card is a perfectly useful financial tool. It is a gift which will delight a certain demographic, and is both practical and effective for a range of circumstances where cash is problematic. Like any other financial product, a gift credit card requires that you pay close attention to the fine print, to make sure you are buying the most appropriate gift credit card for your particular situation.

Images: The Consumerist, KM, PT.