Pros and Cons of Stored Value Cards

A stored value card is like a universal gift card. It is issued in a given amount of money, and it is not associated with any individual name or person. Instead, this card can be used at any time in order to make a purchase; it is like cash. With a prepaid card, the individual holding the card physically deposits money into an account. The person's name is on the card, and the magnetic strip on the card accesses the account in this same person's name. A stored value card is totally independent from any bank account, giving it unique benefits and risks.

Pro: Use in "Credit Card Only" Scenarios

For an individual without a credit card, it can be very challenging to complete certain purchases. For example, credit cards are required to book plane tickets and hotel rooms and to make other reservations. Some retailers have even begun to operate on a "plastic only" basis. If you find yourself in one of these scenarios, having a stored value card can save you from failure to make a payment. The card has a magnetic strip and a credit card number. Either can be used to make your purchase.

Pro: Control Costs and Expenses

You may find a situation where you need to control your costs and expenses with a firmer hand than usual. For example, you may be traveling or giving a credit card to your children or employees. In this type of situation, having control over just how much can be spent is important. You can purchase a stored value card in nearly any grocery store or convenience store today. Once you do, you no longer have to worry about carrying cash, overcharging on your credit card or giving into unnecessary expenses. Your card will work only until you have spent all of the stored value.

Con: High Fees

The card you purchase costs money. For example, a $200 stored value card may cost $220. The additional $20 goes to pay for the physical card, the packaging, and the fees associated with the card's usage. Ultimately, if you compare using a stored value card to using cash on each purchase, you will find you spend more money by using the stored value card. For example, if you want to give your child a gift, you may think $100 is appropriate. You could give him or her $100 in cash, or you could provide a $90 stored value card.

Con: "Like Cash"

Since the card is not associated with any individual name or account, it is like cash. You can spend it anywhere cards are accepted without unique charges and fees. However, on the flip side, if you lose the card, you cannot retain its value. The card is not associated with you or your bank account. Any person who picks up the card can use it for a purchase. The cashier accepting the card will not even ask for identification. You cannot call the card issuer to have the card replaced. You have simply lost the money.

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