How Do Gift Cards Work? A Helpful Guide

You might be surprised to learn that the history of the gift card goes back as far as the early 1900’s. Crazy right? Bosses and corporations were handing out “gift certificates and vouchers” to employees as a way to say thank you for all the hard work throughout the year as they’d normally present them with this gift during the holidays. Nowadays though gift cards are a go-to gift for not just hard workers in the office, but between friends, family, and loved ones. You probably have received a gift card as a gift before as they are a super popular gift idea used by millions. In fact, it’s reported that “gift card sales amount to more than 200 billion US dollars in 2023” by Statista which goes to show just how popular they are.

But have you ever wondered how gift cards actually work? We’ve taken a look before at When Were Gift Cards Invented? A History Through 2024, but what goes into the gift card itself? And how similar are eGift cards to physical gift cards? All of that answered and more as we will be discussing:

• How do gift cards work?
• Open loop vs. closed loop gift card
• Do gift cards expire?
• Is giving a gift card as a gift a good idea in 2025?
• What is an eGift card?
• What is the difference between a physical gift card and an eGift card?
• What are the benefits of a gift card?
• Where can I find the best eGift cards online?

There is a place where you can get e-gift cards from a wide number of national well known brands and even some local vendors known as GiftYa, but we will do a deep dive on that later.

How do gift cards work?

There is a saying young children learn in school that seems to be forgotten as we grow older but not here. That saying is: “there are no stupid questions.” And since you’re here you are wondering about how gift cards work- which fun fact: isn’t the way you might think! 

Did you know that there’s technically no actual money on the gift card itself? The money itself has already been given to the business from where you bought the gift card from at the date of purchase. For example, if you go to buy a gift card for Barnes & Noble, your money is going directly to Barnes & Noble there and then. The gift card itself is essentially a physical representation of the dollar amount purchased stored in their database. You’ve paid ahead of time, the gift card is a direct line of credit that’s used to track back the purchase. 

Every gift card comes with either a magnetic strip, barcode, encoded chip, or serial number which is the way the money is read through the store’s database. They will be able to see that $50 was paid for and you now have $50 to spend. And if you purchase something with the gift card and now only have $20 left on the card, their database will recognize that new value so it’s not an infinite loop of money.

And speaking of loops:

Open loop vs. closed loop Gift Cards: What are they and what’s the difference?

In your research you may have heard of the term(s) “open loop” and “closed loop” but you don’t actually know what that means. Well, we’re here to explain!

“Open loop” and “closed loop” are ways to describe two different kinds of gift cards. 

• An open loop card means that it can be used anywhere where that specific brand is accepted, like a Visa gift card. Visa gift cards can be used at many different businesses, as long as the register accepts Visa as a term of payment then you can use a Visa gift card there. Hence: “open” loop.

• A closed loop card is one you can only use at one specific place. It’s loaded with a set amount of funds and then once the money is spent the card is no longer of value. Like our Barnes & Noble gift card example above, you can only use that card at Barnes & Noble locations, not anywhere else.

Do gift cards expire?

Gift cards are known to last a long time, but do they ever expire?

Answer: yes they do…but not for at least five years.

There is a federal law that states “a gift card cannot expire until at least five years from the date it was activated.” However, if your gift card expires before those five years and you still want to use it, you can get the original value of the card transferred over to another at zero cost.

There is what’s known as the CARD Act (The Credit Card Accountability Responsibility and Disclosure Act) which passed in 2009 and that explains the full details of expiration dates, along with inactivity and service fees that may be on their gift cards. Consumers need to state all this information publicly to potential customers so they can’t be tricked or swindled.

We’ve looked into Why Do Gift Cards Expire? before as there is a lot of interesting information regarding the practice.

Is giving a gift card as a gift a good idea in 2025?

With the sheer amount of products out there in today’s world, finding the right gift for someone can be so hard. You probably just went through a headache or two this past Christmas season trying to get a gift for everyone on your list. It’s especially hard to get gifts for someone you don’t know that well but still want to get a gift for. So yes, gift cards are still a good gift idea in 2025. You can get them an open-loop card where they can buy what they want from virtually wherever they want or get them a gift card to a place you know they like as they’ve talked about it before. That way the control is in their hands and they can buy what they want without any potential for awkward return recipient conversations.

What is an eGift card?

An eGift card is an electronic version of a gift card that, just like a physical card, comes preloaded with a previously specified amount, except this time it’s all digital. There’s no need to worry about losing this card because it’ll either be loaded onto your debit/credit card or digitized on your phone and/or computer. Just like a physical gift card will have that magnetic strip, barcode, encoded chip, or serial number- an eGift card will too. 

eGift cards can be purchased online through the businesses’ website or at reputable eGift card suppliers like GiftYa. Once you purchase the eGift card you can use it online or in a store where it’ll be redeemed through the cashier. There are normally a couple ways to go about making sure this works:

1. If you’re shopping online you can create an account on the store’s website where you can add the gift card to your account so when you enter check out the value of the card will automatically be taken off the purchase total.
2. You might also be given the option to “add a gift card code or voucher” (sometimes named promotional code), there you can add the eGift card’s value to be used for the purchase.

What is the difference between a physical gift card and an eGift card?

Although physical gift cards and eGift cards are the same at the end of the day: a card used to buy merchandise or food from a consumer. There are a few differences between the two that might entice you to choose one over the other should you be in the market to buy a gift card for someone.

Physical Gift Cards:

• You can easily purchase a regular gift card at most grocery stores and local retail chains. When you’re in line for checkout they might have racks of gift cards for their store and occasionally for other businesses too. You’ll be able to pick it up as you check out so your shopping trip hits a two-for-one that day.
• You’re able to give it as a gift in person. If you’re someone that likes to make a card or wants to wrap something, a physical gift card is useful for exactly that.
• They have fixed values. Most gift cards will have values at $15, $25, $50, etc. and that can work well with your gift spending budget.

eGift Cards:

• If you use a site like GiftYa, you won’t be limited to a grocery store’s gift card rack as they have thousands of merchants available both with local venues and national brands. This way you can get a gift card for someone’s favorite spot in the city they live in without having to drive all the way out there.
• You can customize the card. GiftYa and other sites like it will more than likely have a “personalization” option for the eGift where you can decorate it before you send it. It doesn’t beat giving a gift in person but it does add a little bit more fun to the gift card exchange.
• You are able to choose your own money amount. Like anything there are pros and cons to aspects of a physical gift card and if you’re someone who wants to get a $30 gift card but there isn’t any available in-store, you are able to choose that amount when purchasing an eGift. This way you can really stay on budget.

What are the benefits of a gift card?

There are a load of benefits to gift cards. You may have heard the term “girl math” which is a new slang word that started last year where people will come up with a way to justify a purchase of something they want, but may not need. Well, gift cards are a perfect gate way to those girl math needs. For instance you may want something on the expensive side but don’t want to use your debit/credit card to purchase it, well with a gift card you can help take some of the money off the total, that way you’re spending less using your debit/credit card- see? Girl math!

Joking aside, gift cards are often a great substitution for cash because unlike cash or open-loop gift cards you can only use gift cards at one place which saves that cash for a rainy day. They are also easy and convenient to use which makes them a great gift. Gift cards also allow a certain type of freedom because with it you can buy what you want from one of your favorite stores.

Where can I find the best eGift cards online?

We’ve sprinkled in info about GiftYa throughout the article but let’s get to our deep dive: 

GiftYa is an online eGift card retailer for hundreds of restaurants, fast food chains, department stores, famous retailers, online shops and subscriptions services, spas, hotels, airlines, and more. It’s a super easy process too, all you have to do is go onto the GiftYa website or download the mobile app, find the merchant your loved one will like, choose a value up to $250 to put on the card, add a photo, video, message, and gift wrapper onto it- (there is a lot of fun customization options with GiftYa), and then pick a delivery date and time, then it’ll send it via text or email. If you’re someone who tends to give gifts at the last minute, GiftYa has an instant delivery system which means you can buy and send your gift card all within a couple minutes.

GiftYa also has an eGift card unlike any other with GiftYa Select:

We talked a little bit about how gifting decisions can be a headache, and with GiftYa’s catalog you might really not know what place to choose. So GiftYa thought of a way around that:

If you’re an indecisive person or just want to get the best gift possible but unsure of the recipient’s wants, then you might be interested in a GiftYa Select Gift Card as this gift card lets the recipient choose the store, that way you don’t have to make that decision. They get to!

All you do is select the fun stuff, like how much money you want to give and the customization of the card itself and what it looks like when it’s sent over. The recipient will then be able to do all of these things with said GiftYa Select card:

• Select a merchant of their choice
• Activate to a Visa, Mastercard or Amex
• Use as an eGift
• Get a Visa gift card mailed to them
• Transfer to their Zelle Account

You can Purchase a GiftYa Select Gift Card from GiftYa here!

Hopefully we’ve answered how gift cards work and also given you some good information regarding the popular eGift. Now you can go out shopping and get exactly what you need without the question marks attached.