Why Gift Certificates play a role in business

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Advantages of Gift Certificates Compared to Gift Cards

Gift cards and gift certificates are immensely popular among ardent shoppers. Shoppers often use the terms “gift card” and “gift certificate” interchangeably. However, it’s important to understand that there are major differences between the two.

As it turns out, you may be better off using gift certificates over gift cards. Scroll below to learn all about how gift cards differ from gift certificates, and why the latter is so much better for consumers:

How are Gift Cards Different from Gift Certificates?

Gift cards and certificates function similarly. In appearance, they aren’t too different either. Regardless, a gift card is significantly different from a gift certificate.

The easiest way to understand these differences is to consider a gift card as a type of pre-paid debit card. That’s debit, not credit because the card is already loaded with money. You can’t borrow money from a gift card.

A gift certificate, on the other hand, is more like a check. It offers a very specified amount of money for spending.

Gift cards can be reloaded and reused. Gift certificates have a fixed value that goes away once spent.

Comparing the Two

A gift certificate is a one-time purchase. A customer buys it and gifts it to another. The recipient may use it at the store. Once the money is spent, the certificate’s value becomes nil.

A gift card is purchased and then activated. After that, it needs to be loaded with money before gifting. Then the gift recipient spends it at a store.

The value of a gift card doesn’t diminish with that initial purchase. The recipient can reload it and gift it to someone else. On and on the card circulates, until it expires.

The technical details can get murky. But you will be able to understand the difference between the two in terms of a fixed value and a flexible value. Gift certificates have a fixed value, while gift cards don’t.  

Now, don’t confuse either with coupons, which offer discounts.

Why the Differences Matter

The differences between gift cards and gift certificates aren’t superficial. There are certain advantages offered by one unavailable with the other.

Remember how we mentioned earlier that gift cards are similar to pre-paid debit cards? Like actual debit cards, they have various fees associated with them.

For example, you will most likely have to pay a fee to purchase the gift card. That’s in addition to the money loaded on the card by the buyer.

Then, to use the money in the card, consumers often have to pay an activation fee as well. Activation fees can run from a dollar to $5. However, the fact is that you have to spend more to just use a gift card. Gift certificates don’t present this problem.

The Truth about Commissions

Gift cards often have a Visa or a MasterCard logo on them. That means these financial giants are charging you commissions for using the card. The fees associated with a gift card can depend on its overall value.

Gift cards also come with an expiration date. Federal regulations in recent years have made it difficult to make gift cards expire within a year or so. Now gift cards are valid for up to 5 years upon the issuance date.

The actual funds in a gift card don’t expire. However, the plastic card does. When this expires, the user no longer has access to the funds.

That’s unfortunately not the end of fees charged by gift card companies. When a gift card is not used for a year, the issuer can charge an inactivity fee. You could slowly lose funds in a gift card if you don’t use it.

Gift Certificate Benefits That Gift Cards Don’t Offer

Gift certificates incur neither fees nor have a sell-by date (for the most part). Gift certificates have a strict set value. If you buy a gift certificate for $20, you will have $20 to spend. There are no additional charges.

The funds within a gift certificate don’t expire either. The paper cards themselves don’t expire. Most stores offer gift certificates with no “sell by” date.

Gift certificates are issued by stores or brands, not by credit card companies. As a result, you don’t need to pay commission charges or inactivity fees for funds in a gift certificate.

Here’s a quick summary of the advantages gift certificates offer over cards:

  • No service charges
  • No activation fees
  • No inactivity charges
  • Typically don’t have expiration dates
  • All the funds in the certificate are usable

Gift cards normally charge the following:

  • An activation fee
  • A commission when the gift card is used
  • An inactivity penalty from funds

Other fees may apply depending on the entity that issues the card. The higher the value of the gift card, the more fees it would charge.

Consumers don’t realize it, but you could lose a good chunk of money using a gift card. Here’s a quick look at the commission fees that apply to a Visa gift card:

  • $2.95 for funds from $10.00 to $74.99
  • $3.95 for funds from  $75.00 to $149.99
  • $4.95 funds from $150 to $249.99
  • $5.95 funds from  $250.00 to $349.99
  • $6.95 funds from  $350.00 to $500.00

These are only the standard fees. The commission can run high under special circumstances.

An Overview of Other Gift Card Fees

Activation costs for gift cards aren’t cheap either. Here’s a look:

  • Target charges $5 to activate a $50 gift card
  • Walmart charges $3.88 to activate a $50 gift card

Activation fees will vary depending on the store. In any case, they apply and drive up costs.

Also, gift cards have purchase fees. Here’s what popular gift cards cost on Amazon:

  • $4.95 for a $50 MasterCard gift card
  • $4.95 for a $50 Visa  gift card

Gift card inactivity fees are charged per month if the card hasn’t been used continuously for a year. Card companies aren’t transparent about these fees. You will have to read up on the terms and conditions that apply to the gift card to understand how much your funds would be charged for inactivity.

No such fees apply to gift certificates. You only need to pay for the amount you wish to gift when purchasing the card.

How to Ultimately Choose between the Two

As a customer, you should ideally use gift certificates instead of cards. Here’s why:

  • Your funds will not reduce in value because of inactivity
  • You won’t need to pay extra just for purchasing the card
  • No commissions to card companies
  • No expiration dates to worry about

Some stores even allow gift certificate holders to redeem the remaining value as cash. For example, if you purchased a $10 latte using a $20 Starbucks gift certificate, the outlet may allow you to get the remaining $10 in cash. It’s not a universal option, but it is offered by some brands.

You don’t have to keep topping up a gift certificate either. Once used, it’s done with.

That’s not to say that gift cards are completely impractical. These cards are valuable if you keep using them constantly before the funds expire.

Gift cards can be used interchangeably between stores. Gift certificates are typically store specific.

That being said, if you want to be more economical, gift certificates are the best option. Avoid gift cards if possible. It’s often better to gift someone a real present than a gift card.

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