Whether you’re shopping online for your next deal or in-store picking up a roll of toilet paper before it sells out again, it’s more than likely you’ve used some form of payment card for your purchases. You’re not alone either – most consumers are now using cards over cash. In fact, according to Experian, the average value of a cash transaction was $22, compared to $112 for non-cash transactions. Consumers are swiping now more than ever, but did you know that there are actually quite a few ways to do so? Credit cards, debit cards, gift cards … oh my!
So take a break from writing your holiday “thank you” cards to learn the low down on gift, prepaid debit, debit and credit cards. Read on to learn how to play your cards just right!
Who doesn’t love the gift of a gift card? Besides being a super-easy way to give a present to a pal, they’re also a great way to make purchases! Gift cards are stored value cards, with a specific pre-loaded dollar amount of spending power. These cards can be issued anonymously, wrapped in a pretty bow or box, distributed during your office Christmas party, or even given away digitally! Unlike other types of payment cards, they don’t typically come with specific ownership requirements and often appear in two forms – closed-loop or open-loop.
Wait… gift cards have loops? What does that mean?!
- Closed-loop gift cards come from a specific retailer with a value that can only be used to purchase products from the card distributor. Examples of closed-loop cards are the Target gift card (perfect for purchasing that sassy sweater you’ve been eyeing) or the Best Buy gift card which can be used for the big screen television of your dreams.
- Open-loop gift cards are branded with a payment card processor network (such as Visa, Mastercard, American Express, Discover) and can be used for purchases at almost any retailer. These cards allow the owner to shop in-store and online anywhere debit is accepted until the card’s balance is depleted. In some cases, these cards can also be reloaded with funds and reused. An example of an open loop-card is the Visa gift card – which allows you to shop for that fabulous Target sweater AND your big screen TV with the same card and balance. Talk about savvy!
TIP: Be sure to check out the fine print for restrictions or limitations on your ability to access small fund balances, and for activation or other fees.
Prepaid Debit Cards
A prepaid debit card is another type of stored value card, but unlike a gift card, prepaid debit cards are issued to specific cardholders and not typically as freely transferable. The benefit of these cards is that no checking account is required to access your funds and make purchases as would be required for a debit card that is tied to a bank account. Prepaid debit cards are loaded with funds giving you the ability to use the card until the funds are exhausted (kind of like a wallet – once the money is gone, you need to load more funds in order to use the card). Prepaid debit cards may have different fee structures that include a monthly fee to access funds on the card or a “pay-as-you-go” option that assesses a fee each time the card is used. Some prepaid debit card programs have fun options like personalization of your prepaid debit card. Be sure and read your Cardholder Agreement for information about fees, including inactivity fees. Prepaid debit cards (without overdraft) are a great way to stick to a budget because you can only spend as much as you load on the card.
TIP: Moneytree offers its very own prepaid debit card in our U.S. markets. These cards offer a lot of convenience and can be loaded with funds at a lot of locations. At Moneytree, we always load and unload funds on prepaid debit cards purchased at Moneytree for free!
Not to be confused with the prepaid debit card, a debit card is a card that is specifically linked to a bank account. Oftentimes you get a debit card from your bank or credit union when you open a checking account. Sometimes a debit card is free to use. Sometimes you will pay a fee to use the card. These cards don’t need to have funds loaded onto them. Instead, cardholders access funds that are already in their bank accounts using their card as the means of payment. Debit cards can provide quick access to cash and can be used at an automated teller machine (ATM) to get money from your checking account. Your bank may offer overdraft protection on their debit cards, which could save you the trouble and possible embarrassment of a declined card by allowing you to make purchases even if there are insufficient funds in your account to cover the purchase, but overdraft can be expensive and come as a surprise to your budget if you don’t expect it.
TIP: Look carefully at any overdraft protection program before agreeing to participate. Also be aware of potential charges and fees to access your funds using an ATM.
So what about credit cards? Well, the first thing that distinguishes a credit card from any of the cards we’ve talked about so far is that they are a form of credit (get it: “credit” card) rather than a means of accessing funds that you have already loaded onto a card or in your bank account (as in the case of a debit card). Credit cards are a form of “open ended” credit which means that you are qualified to borrow (using the credit card) up to your pre-approved limit. And you can borrow as little or as much as you want to up to your pre-approved limit. You can pay your balance back in full or in monthly minimal payments (or somewhere in between). Once you’ve paid down your balance (in part or in full) you can re-borrow up to your limit.
Many credit card programs offer valuable rewards points. But, there may be fees and interest associated with carrying a balance and it may be easier than you think to rack up a large amount of debt using credit cards.
TIP: Need credit but don’t want to get in over your head with open-ended credit? Try a payday loan from Moneytree. Payday loans are “closed ended” forms of credit that need to be repaid in full on a designated date. With a payday loan, you know how much money you’re going to borrow and the full amount of the finance fee on the day you take it out. Payday loans can help you stay on track with your borrowing goals without getting in over your head.
Looking for more money tips? Moneytree is here to help – check out our Smart Money page for more info.