When you’re looking to buy someone a gift but don’t know what to get, money expert Clark Howard wants you to be very skeptical about ever purchasing a Visa gift card.
Clark doesn’t like retail gift cards either, but it’s these prepaid gift cards that are a real concern.
Problem #1: Fees
First, the cards aren’t cheap. Purchase fees vary by card, but the Target Visa Gift Card carries a $5 purchase fee for a $50 gift card, bringing the total to $55.
If you gave the recipient cash instead, you would save the $5 purchase fee.
The fees don’t stop there. Many of these cards have monthly maintenance fees, which are often waived for the first year. If you go to use a card you’ve forgotten about, you may have nothing left.
Problem #2: Not always easy to use
That brings us to Clark’s second problem with Visa gift cards. A lot of people say it’s difficult to use up the entire balance on the card, especially when there’s only $5 or $10 left.
Although the cards can be swiped at millions of retailers across the country, both online and offline, there are times when purchases are declined.
For example, a Visa gift card I received was disabled at gas pumps. You had to go inside the station to use it.
Restaurants can also be tricky. Some of them authorize an additional temporary 20% gratuity charge to your bill, but the actual charge is the price of the meal plus any gratuity you add.
So, if your bill is $50 before tip, your $50 gift card may be declined due to the preauthorization hold.
Hotels and car rental companies also place preauthorization holds. You must always make sure you have enough money on the card to cover the purchase amount and the hold.
Explanation of preauthorization holds from the terms and conditions:
When making a purchase at a merchant that provides certain services or accepts tips, a preauthorization hold may be placed on your card for the estimated total price of your transaction.
This estimated total price will be for an amount greater than the initial purchase, 20% or more, to allow for tips, incidentals or additional services and will reduce your available balance.
Clark tip: If you have a gift card with just a few dollars left on it, spend it at the grocery store. They can usually handle split transactions without a problem.
Problem #3: Gift card fraud
Finally, thieves love gift cards. On the radio show, Clark shared how he recently heard a story from someone who went to use a new Visa gift card, but the value had already been emptied.
Visa gift cards can be replaced if they’re lost or stolen, but there may be a fee involved — sometimes $5 or more.
This is just one more reason Clark prefers credit over debit or gift cards. If you report a credit card lost or stolen, no money typically comes out of your pocket.
Clark’s key takeaway
“The marketing is so clever for the piece of trash Visa products, but they’re pieces of trash for a reason,” Clark said. “They’re vastly, overwhelmingly, and completely inferior to giving somebody cash when you don’t know what to give them.”