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Stored Value Cards: Types, Usage Scenarios, and Security Measures

Last updated 04/08/2024 by

Bamigbola Paul

Edited by

Fact checked by

Summary:
Explore the world of Stored Value Cards (SVC), commonly known as gift cards. Understand the differences between closed-loop and open-loop cards, and how they compare to debit and credit cards. Delve into the functionality, benefits, and drawbacks of SVCs for a comprehensive insight into this electronic payment method.

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Stored Value Card (SVC) definition

Stored Value Cards (SVC), colloquially known as gift cards, are a ubiquitous form of electronic bank debit cards. Unlike traditional debit cards, SVCs come pre-loaded with a specific dollar value. This innovative payment method is provided by credit card networks, bank card issuers, and retail merchants, offering a non-cash payment alternative for various purposes.

How Stored Value Cards work

Stored Value Cards are categorized into two main types: closed-loop and open-loop cards. Closed-loop cards, exemplified by Visa, Mastercard, and American Express gift cards, have a one-time limit. In contrast, open-loop cards can be reloaded with funds, allowing users to utilize them continuously.

Stored Value Card versus debit card

While SVCs have a specific dollar value pre-loaded, debit cards deduct money directly from the user’s checking account. This distinction results in a fundamental difference in their usage and application. Debit cards offer a direct correlation between the card’s value and the attached checking account balance.
Some banks provide overdraft protection for debit cards, covering transactions up to a specified limit. However, exceeding this limit may lead to high institutional fees. It is crucial for consumers to be aware of these limitations and potential fees when using debit cards.

Stored Value Card versus credit card

Compared to SVCs, credit cards provide users with the flexibility to carry a balance, allowing for the accumulation of debt. This privilege, however, comes with the responsibility of paying interest on the outstanding balance. Credit cards, classified as unsecured loans, may incur higher interest rates than other types of personal loans.
Unlike closed-loop SVCs, credit card loans are open-ended, enabling users to borrow repeatedly as long as they stay within their credit limit. Managing credit card usage requires careful consideration of interest rates, payment due dates, and overall financial discipline.

Pros and cons of Stored Value Cards

WEIGH THE RISKS AND BENEFITS
Here is a list of the benefits and drawbacks to consider.
Pros
  • Convenient non-cash payment method
  • Can be used for specific retailers or universally (open-loop)
  • Prevents overspending as it is pre-loaded with a specific value
  • Flexible gift option for various occasions
Cons
  • May have expiration dates
  • Restricted usage to specific retailers (closed-loop)
  • Potential loss of remaining balance if lost or expired
  • Some SVCs may have associated fees

How to use Stored Value Cards wisely

Using Stored Value Cards wisely involves understanding their terms, limitations, and potential fees. Here are some tips to make the most of your SVC:

1. Check expiration dates

Be aware of the expiration date on your SVC to avoid losing the remaining balance. Plan your purchases accordingly to utilize the card before it expires.

2. Know the terms and conditions

Read and understand the terms and conditions associated with your SVC. Some cards may have usage restrictions, fees, or specific guidelines that impact their functionality.

3. Monitor your balance

Regularly check the remaining balance on your SVC, especially if it’s a closed-loop card with a one-time limit. This helps you plan your purchases and avoid any surprises at the checkout.

4. Combine multiple cards

If you have multiple SVCs with small balances, consider combining them for a more substantial purchase. Many retailers allow the consolidation of gift card balances.

Examples of Stored Value Card usage

Stored Value Cards (SVCs) find versatile applications in various scenarios. Let’s explore some comprehensive examples to illustrate their usage:

1. Corporate incentives and rewards

Many companies utilize SVCs as a form of employee incentives, bonuses, or recognition rewards. Employees receive gift cards for exceptional performance, achieving targets, or contributing to the success of the organization. This provides a tangible and appreciated reward for their efforts.

2. Promotional giveaways

Retailers and businesses often use SVCs as promotional giveaways during special events, product launches, or marketing campaigns. Customers may receive gift cards as a bonus for making a purchase, attending an event, or participating in a survey. This not only attracts customers but also encourages them to return to the business.

3. Charitable contributions

Stored Value Cards are also employed for charitable purposes. Non-profit organizations distribute gift cards to individuals or families in need, allowing them to purchase essential goods or services. This ensures that the recipients have the flexibility to choose items based on their specific requirements.

Enhancing security and protection

Security is a crucial aspect of Stored Value Cards, ensuring that users’ funds are protected. Explore the measures taken to enhance security and safeguard users’ financial interests:

1. Fraud protection measures

Credit card networks and issuers implement advanced fraud protection measures to secure SVC transactions. These measures include real-time transaction monitoring, anomaly detection, and multi-layered authentication processes. This helps in identifying and preventing unauthorized or suspicious activities.

2. Lost or stolen card protections

In the unfortunate event of a lost or stolen Stored Value Card, users are often provided with protection measures. They can report the loss to the issuer, who may freeze the card and issue a replacement. Additionally, some SVCs offer liability protection, limiting the user’s responsibility for unauthorized transactions.

3. Online transaction security

With the increasing prevalence of online transactions, security measures for Stored Value Cards extend to the digital realm. SSL encryption, secure payment gateways, and two-factor authentication contribute to a secure online shopping experience. Users can confidently use their SVCs for online purchases without compromising their sensitive information.

Conclusion

In conclusion, Stored Value Cards provide a unique and efficient means of non-cash payment. Whether closed-loop or open-loop, users can benefit from the convenience and control offered by these pre-loaded cards. However, it’s essential to be aware of the differences between SVCs, debit cards, and credit cards, considering their respective advantages and drawbacks. As technology evolves, Stored Value Cards continue to play a significant role in the ever-changing landscape of electronic payments.

Frequently asked questions

What is the primary difference between closed-loop and open-loop stored value cards?

Closed-loop cards are typically limited to a specific retailer and have a one-time-use restriction, while open-loop cards can be reloaded and used universally.

Can I check the remaining balance on my stored value card?

Yes, most stored value cards allow users to check their remaining balance either online, through a mobile app, or by contacting the card issuer’s customer service.

Are there any fees associated with stored value cards?

While some stored value cards may have associated fees, such as activation or maintenance fees, it’s essential to review the terms and conditions of each card to understand the potential charges.

What happens if my stored value card expires?

If your stored value card has an expiration date, the card may become inactive after that date. It’s crucial to be aware of the expiration date and use the card before it expires to avoid losing the remaining balance.

Can I transfer the balance from one stored value card to another?

Transferring balances between stored value cards may vary depending on the card issuer and type. Some cards allow balance transfers, while others may not. Check with the issuer or review the terms of your specific card for more information.

Key takeaways

  • Stored Value Cards, or gift cards, offer a convenient and pre-loaded non-cash payment method.
  • There are two main types of SVCs: closed-loop and open-loop, each with its own set of features and limitations.
  • Debit cards deduct money directly from the user’s checking account, while SVCs come pre-loaded with a specific dollar value.
  • Credit cards allow users to carry a balance and pay interest on the outstanding amount.
  • Understanding the pros and cons of SVCs is crucial for informed and responsible usage.

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