Prepaid gift cards are some of the most popular gift items on the market. Not surprisingly, every major retail chain now features gift card racks in prominent positions by their check-out counters. Look for those gift card displays to come soon to a post office near you now that the U.S. Postal Service has decided to get in on the gift card action.
In May of this year, the Postal Service will launch a two-year trial sale of “open-loop” gift cards issued by major credit card companies such as Visa, MasterCard and American Express. The Postal Service will begin the program by selling the cards at approximately 2,000 post office locations; but it hopes to expand to an additional 3,000 locations in time for next year’s holiday season.
Open-loop gift cards — aka network-branded gift cards — differ from retail gift cards in that they are not tied to a specific store or merchant. This enables users to apply the gift cards toward purchases anywhere regular credit cards are accepted. Although this is an obvious advantage over retail gift cards, open-loop gift cards — including the ones that will be sold at post offices — also have some disadvantages.
For example, unlike most retail gift cards, open-loop gift cards come with built-in fees. For the cards that will be featured at post office locations, cards with set rates of $25 and $50 will have a purchase fee of $4.95, while cards with variable amounts ranging from $26 to $100 will carry a fee of $5.95. This means that on gift cards in the $25 to $50 range, you will pay a fee of about 10 to 20 percent of the card’s net value, and for gift cards in the $26 to $100 range, you will pay a fee ranging from about 6 percent to 23 percent of the card’s face value. Not exactly cheap.
Still, the fees may be worth it if the gift card is an occasional purchase, and if it’s important to you that the recipient of the gift card has total freedom of spending. That way, you don’t have to worry about whether or not the receiver will be able to use the gift card. Not only can the card be used for discretionary purchases; it can also be used to pay for groceries, and, in many cases, for utility, auto or medical bills.
Note, however, that there are a few catches for open-loop gift card users. For example, it may be difficult or impossible to buy gas with an open-loop gift card. Gas stations will automatically put a hold of $50 or $75 on the card before you pump, and, if that’s more than the balance on the card, you’re out of luck. Most restaurants will also put a hold equaling the amount of the bill plus twenty percent to ensure that the cardholder is capable of leaving a tip — again, leaving the card unusable if that amount exceeds the gift card balance.
Another problem that open-loop gift cards present is that it can be difficult to use the remaining balance when only a few dollars are left on the card. To use a gift card with, say, $15 left on the card, toward a $100 purchase, the store will need to do a split-tender transaction, meaning that the cashier will put $15 on the card and let the cardholder pay the remaining $85 with a different payment method. However, not all cash registers are equipped to do this, and some merchants are unwilling to do a split-tender transaction. Usually, this issue can be overcome by simply finding a store where the cash register is set up to do this type of transaction. The point-of-sale registers of major retail chains are more likely to be equipped with this feature. However, if the receiver of the gift card is not aware that some retailers will allow a split-tender transaction, part of the balance could remain unused.
So, when considering an open-loop gift card for friends and loved ones, keep these drawbacks in mind. Open-loop credit cards make a wonderful present; but if you want to be sure that you, or rather the receiver, get the full value of the money you give, remember that your loved ones will probably appreciate a check or an envelope full of cash just as much.