Stored-Value Card

A stored value card is a type of electronic bank debit card. Stored-value cards have a specific dollar value programed into them. Banks provide these cards as a service for customers who cannot open checking or other deposit accounts.

Stored-value cards come in two major categories. Closed-loop cards have a one-time limit; merchant gift cards and prepaid phone cards are two examples. Holders of open-loop cards, on the other hand, may reload these with cash and use them again.

A stored value card differs from a debit card in that a debit card does not have a specific value of money attached to it. Rather, it is a payment card that deducts money directly from a consumer’s checking account when making a purchase. In this regard, its value directly correlates with the value of the attached checking account.

Unlike a credit card, however (see below), debit cards generally do not allow a user to go into debt. In addition, the cards often have daily limits for purchases (i.e. consumers might not be able to spend large sums of money with simply a debit card). At times, if a user has signed up for overdraft coverage, it may be possible to extend the amount funds after a checking account reaches zero. Overdraft allowance lets the individual continue withdrawing money – similar to a credit card.

Some financial institutions offer overdraft protection, in which they bar an individual from withdrawing if the account hits a set limit, such as $100, or more. This ensures the account never goes below zero, triggering a service fee.

A credit card may also be used to make purchases in person at a store, over the phone or online. Unlike a debit card or stored value card, however, a credit card allows the user to carry a balance. In exchange for this privilege of using loaned funds, users often pay interest on an existing balance. Credit cards may even charge a higher interest rates than other personal loans, such as auto loans, home equity loans, student loans, and mortgage loans (although rates are generally lower than payday loans).

Unlike closed loop stored value cards, credit card loans are open-ended. A user can borrow repeatedly as long as he or she stays below his or her credit limit.