Cash is an easy gift option, but what form it should take is another question. Putting bills into an envelope may work, but there’s no way to recover cash if it gets lost or stolen. Plus, it's easy to forget cash was a gift once it's tucked into a wallet.
Storing cash on plastic cards is better, provided you choose wisely between gift cards and prepaid debit cards. Here’s what to know.
Gift cards vs. prepaid debit cards
Let’s start with how they’re similar: Both are prepaid cards, meaning you put money on the card in advance for spending at physical and online stores. They also offer protections against loss if you register them in your name. You might see both types of cards in the same section of a store such as Walgreens, so be sure you know which one you’re picking up.
The main difference between a gift card and prepaid debit card is that a gift card is a one-time spending card, and a prepaid debit card is a reloadable payment option that has most features and fees that a checking account and a linked debit card have.
- Gift cards have one purpose: to buy goods at a dedicated store brand or at any store that accepts a payment network such as Visa, Mastercard or American Express. They don’t allow cash withdrawals, and most aren't reloadable.
- Prepaid debit cards have many functions: make purchases; withdraw cash at ATMs; banks or certain retail stores; and use web features such as bill pay. They're also reloadable.
Because of their flexibility, prepaid debit cards can serve as budgeting tools or even as replacements for checking accounts. They've traditionally been popular for curbing overspending or helping children and others new to banking develop helpful money habits, but in recent years there have been more banks without overdraft fees (a common cost when overspending) as well as banking apps for kids to help track spending.
| Gift cards | Prepaid debit cards |
|---|---|
| No monthly fees. (Inactivity or other fees can apply.) | Can have monthly fees. |
| For spending only. | For multiple uses: spending, ATM withdrawals, bill pay, transfers, direct deposit and more. |
| Available in retail stores and online. | Available in retail stores and online. |
Winner: Gift cards
Gift cards are true to their name: Gifts. Their simplicity is partly what makes them better to give. But there’s another reason: Prepaid debit cards can have monthly fees like checking accounts do and the fees, often $5 to $10, can add up to $120 per year. There may be other fees as well, such as transaction or inactivity fees.
Gift cards are the better choice, but they’re not all equally good deals.
» Have an unwanted gift card? Learn how to exchange gift cards
General-use gift cards, such as those from Visa and Mastercard, tend to have one upfront fee, often called a purchase or activation fee, which the gift giver would pay. The fee might be $2.95 to $5.95, depending on the amount added to the card, based on a sampling of gift card websites. But there aren’t usually other fees after purchase.
There are exceptions, though. A bank may offer general-use gift cards that have replacement card fees or inactivity fees, which may get charged monthly after a year of no card use.
You can get around most, if not all, fees by buying a specific store brand gift card. In general, understand the terms and fees on a gift card before you buy it so that your holiday gift brings joy with no fees attached.
